U.S. Bancorp to acquire Piper Jaffray for 4.2 times book value

Weekly Corporate Growth Report, Dec 22, 1997

The Deal: In a deal that pairs the nation's 15th-largest commercial bank with the llth-largest securities firm, U.S. Bancorp has agreed to acquire Piper Jaffray for $730 million, or $37.25/ share. This price tag does not include an incentives package that U.S. Bancorp has agreed to pay to retain Piper Jaffray's key talent While the exact amount of this package was not disclosed, analysts estimated it could cost U.S. Bancorp as much as $200 million, possibly more, in the next three years. The deal is expected to be slightly dilutive to U.S. Bancorp's reported earnings in 1998 and 1999, though it should add to cash earnings immediately. On the news, U.S. Bancorp rose $1.75, or 1.5%, to $115/share, while Piper Jaffray shot up $6.625, or 22%, to $36.375/ share.

Discussion: The deal would provide U.S. Bancorp with retail and institutional brokerage services, investment banking and merger and acquisition assets. It would also increase its assets under management by $13 billion. The acquisition comes as Depression-era restrictions that had banned banks from investment banking and other securities businesses are falling apart The reason that U.S. Bancorp is paying such a high price for Piper Jaffray is largely due to the fact that there are a dwindling number of available securities firms.

Piper Jaffray is one of the nation's largest regional brokerage firms, with over 1,200 brokers in 19 states. Its customers are mostly the same types of midsized companies that U.S. Bancorp has as a customer base. Piper Jaffray has offices in 16 of the 17 states in which U.S. Bancorp has branches.

Despite being one of the nation's most profitable commercial banks, U.S. Bancorp had increasingly risked losing many of its customers to securities firms or other banks with investment-banking functions, unless it developed the ability to underwrite securities or provide mergers and acquisitions advice.