Wall Street is expressing growing doubt that Riggs National Corp.'s sale to PNC Financial Services Group Inc. will go off as planned, or even at all.
RBC Capital Markets Corp. analyst Gerard S. Cassidy, in a research report yesterday, said a potentially lengthy and costly Department of Justice investigation into Riggs's money-laundering problems, as well as several lawsuits filed against the District-based company, put the $766 million deal for Riggs "at risk of being delayed or scrapped in its entirety."
Acknowledging the possibility that the transaction might not happen, Riggs executives have developed contingency plans to move forward without a deal, sources close to the company said. The sources spoke on the condition they remain anonymous because Riggs's official position is that the deal is on track. These sources also said Riggs senior executives have acknowledged a better-than-average chance the deal will have to be renegotiated.
Riggs spokesman Mark N. Hendrix declined to comment. Brian E. Goerke, spokesman for PNC, said, "We're progressing with integration plans with respect to the Riggs acquisition."
Riggs stock has declined since July, when Pittsburgh-based PNC offered Riggs shareholders the equivalent of about $24 a share in stock and cash for Riggs. Riggs closed yesterday at $20.24 a share, down 87 cents. Short interest -- the number of shares borrowed by investors betting that Riggs's stock will decline in value -- has grown as well.
PNC's stock fell in the weeks following the July announcement but has rebounded since. It closed yesterday at $52.69, up 39 cents.
The deal is supposed to be completed in the first quarter of 2005. But PNC negotiated a relatively stringent "material adverse change" clause in the merger agreement, giving it the ability to walk away if regulatory or legal problems at Riggs put PNC at legal or financial risk.
Analysts have also carefully parsed the words of PNC chief executive James E. Rohr in recent weeks. In a presentation to analysts on Sept. 14, Rohr said he was watching the Riggs situation "very closely."
"And we will not do something that will be shareholder unfriendly," he added, according to a transcript of the presentation.
Riggs was fined $25 million in May for failing to report suspicious transactions involving Saudi Arabian diplomats and officials with the country of Equatorial Guinea. Since then, the Department of Justice has opened a criminal investigation of the bank and some employees relating to Equatorial Guinea and the bank's handling of millions of dollars in deposits for former Chilean dictator Augusto Pinochet.
Henry J. Coffey, the bank analyst at Ferris Baker Watts Inc., said that he thought the price PNC agreed to pay for Riggs was already too high and that it is doubtful the sale will go forward as planned.
"The deal never made any sense in the first place," Coffey said. "The honest answer is we don't know what [PNC] is thinking. But as an external observer, it wouldn't surprise me if they didn't do the deal. More likely, it will downwardly negotiate the terms."