A Risky Game Of Hard To Get

Ira Stepanian is one reluctant suitor. The Bank of Boston Corp. chief has brought his much-coveted institution to the altar no fewer than five times in recent months, only to see would-be merger partners slip away. Just last week, three big banks--CoreStates Financial, Mellon Bank, and Banc One--took a pass on the $45 billion Boston bank. Earlier this year, Stepanian fumbled deals with New Jersey's First Fidelity Bancorp. and with rival New England giant Fleet Financial Group.

What is Stepanian's problem? Critics say the cautious, detail-minded CEO has been immovable on too many key issues: notably, maintaining the Bank of Boston's name, holding on to its Boston headquarters, and keeping control in his managers' hands. Asks one incredulous investment banker: "How can you merge with Bank of Boston and use their name, their headquarters, and let them run it? It's not going to happen."

UNFAZED. But as the tempo quickens in banking's fast-moving game of musical chairs, Stepanian's inflexibility may leave him scurrying for a seat. Unallied, Bank of Boston will be hard-pressed to remain a global player against larger rivals. Worse, it risks becoming prey in an unwanted takeover.

Stepanian says he and his board are unfazed. "We have a pretty clear idea of what we think are important factors" in a merger, the CEO says. "We're 211 years old, and we think we bring something to the table." What's more, he says he's under no pressure to merge. "We're not closing our eyes [to deals]...but right now, we're going to stand back and take stock," says Stepanian.

His unyielding stance is nothing new. Bank sources say Stepanian's intractability has scuttled deals, including one with Shawmut National as far back as 1992. "The man has to win every negotiating point," says one top banker. Adds Harry Keefe, a large Bank of Boston shareholder: "It comes down to ego."

In the midst of the current flurry of mergers, bankers simply can't be bothered to woo coy targets. First Fidelity, for instance, got serious with Stepanian on a deal that many Bank of Boston directors supported, say sources close to the bargaining. But when Stepanian's sessions with First Fidelity Chairman Anthony P. Terracciano bogged down, First Union Corp. in Charlotte, N.C., slipped in to snap up First Fidelity for $5.1 billion--a hefty premium over its book value. First Fidelity declines to comment.

Nobody questions the CEO's skills as a banker. The son of Armenian immigrants, Stepanian, now 58, is one of the bank's first non-Brahmin chief executives. He took the job in 1987 following a fast-track commercial-lending career. After pulling the bank out of a near-disastrous bout with bad real estate loans, he turned it into a big moneymaker. The bank's net income jumped 41% in the second quarter, to $133 million, and its 18% revenue growth was No.1 among 27 peers. Many bank analysts have recommended its stock this year, driving the share price from about 26 to more than 41.

BRONX CHEERS. But dealmaking clearly is not Stepanian's strong suit. On July 20, he persuaded his board to proceed with a $4.3 billion merger with CoreStates, Philadelphia's largest bank. A proposed $4.6 billion alliance with Pittsburgh's Mellon Bank made him uneasy, bank sources say, because of likely deep cost-cutting.

But the next day, after word of the CoreStates deal leaked, the Bronx cheers were overwhelming. Institutional investors complained that the offer of $38 a share was too low. Analysts argued that the deal had no obvious cost savings or benefit to shareholders. The Boston bank's stock slipped by 13/4, to just over 40.

The argument became moot when Banc One Chairman and CEO John B. McCoy telephoned Stepanian and offered $45 a share, or $5 billion. Stepanian "politely" said no, McCoy says. Stepanian declined comment. But this offer made the CoreStates deal pale: Talks with CoreStates collapsed on July 22.

Obviously, McCoy was looking to play the spoiler with CoreStates. And he's not apt to make a hostile run at Bank of Boston. Still, with such heavyweights showing interest, Stepanian will have a hard time insisting on a deal on his terms only. The Wall Street rumor mill buzzes with potential suitors, such as NationsBank and Bank of America. The looming question: What will Stepanian do if the best matches all are made and his bank winds up as the industry's last old maid?