<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
June 1, 1999
- --------------------------------------------------------------------------------
(Date of earliest event reported)
Peoples Heritage Financial Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maine 0-16947 01-0437984
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
P.O. Box 9540, One Portland Square, Portland, Maine 04112-9540
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(207) 761-8500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
On June 2, 1999, Peoples Heritage Financial Group, Inc. ("PHFG") announced
that it and Banknorth Group, Inc. (the "Company") had entered into an Agreement
and Plan of Merger, dated as of June 1, 1999 (the "Agreement"), which sets forth
the terms and conditions pursuant to which the Company would be merged with and
into PHFG (the "Merger") and PHFG would change its name to "Banknorth Group,
Inc." The Agreement provides, among other things, that as a result of the
Merger, each outstanding share of common stock of the Company (subject to
certain exceptions) will be converted into the right to receive 1.825 shares of
PHFG's common stock, plus cash in lieu of any fractional share interest.
Consummation of the Merger is subject to a number of conditions, including (i)
the approval of the Agreement and the Merger by the shareholders of PHFG and the
Company, (ii) the receipt of requisite regulatory approvals, (iii) receipt by
the parties of an opinion of counsel as to certain tax consequences of the
Merger, (v) receipt by the parties of letters from their independent public
accountants stating their opinion that the Merger shall qualify for
pooling-of-interests accounting treatment and (v) satisfaction of certain other
conditions.
In connection with the Agreement, PHFG and the Company entered into a Stock
Option Agreement, dated as of June 1, 1999 (the "Company Stock Option
Agreement"), pursuant to which the Company granted PHFG an option (the "Company
Option") to purchase up to 4,621,085 shares of the Company's common stock
(subject to adjustment as set forth therein), which represents 19.9% of the
Company's outstanding shares of common stock, at a purchase price of $26.80 per
share (subject to adjustment as set forth therein). The Company Option will
become exercisable upon the occurrence of certain events, as specified in the
Company Stock Option Agreement, none of which has occurred as of June 1, 1999.
In connection with the Agreement, PHFG and the Company also entered into a
Stock Option Agreement, dated as of June 1, 1999 (the "PHFG Stock Option
Agreement"), pursuant to which PHFG granted the Company an option (the "PHFG
Option") to purchase up to 20,820,000 shares of PHFG's common stock (subject to
adjustment as set forth therein), which represents 19.9% of PHFG's outstanding
shares of common stock, at a purchase price of $19.20 per share (subject to
adjustment as set forth therein). The Option will become exercisable upon the
occurrence of certain events, as specified in the PHFG Stock Option Agreement,
none of which has occurred as of June 1, 1999.
In connection with the Agreement, (i) the Company adopted an amendment to
its Rights Plan, dated as of June 1, 1999, which generally provides that the
Agreement and the Company Stock Option Agreement and the transactions
contemplated thereby shall have no consequences for purposes of such Rights
Plan, and (ii) PHFG adopted a similar amendment to its Rights Plan with respect
to the Agreement and the PHFG Stock Option Agreement.
The press release issued by PHFG and the Company with respect to the
announcement of the transaction described herein is attached hereto as Exhibit
99.1 and is hereby incorporated herein by reference in its entirety, except that
it is estimated that the effect of the Merger will be accretive to earnings of
the resulting company by four cents per share and five cents per share in 2001
and 2002, respectively, and not three cents per share and four cents per share
in these respective years as stated in such press release. Also attached as
Exhibit 99.2 and incorporated herein by reference is a presentation given by
PHFG to investment analysts on June 2, 1999.
2
<PAGE> 3
The press release and the analysts presentation incorporated herein by
reference contain forward-looking statements with respect to the financial
condition, results of operations and business of the surviving corporation upon
consummation of the Merger, including statements relating to: (a) the estimated
cost savings that will be realized from the Merger; (b) the estimated impact on
results of operations of the Merger and (c) the restructuring charges expected
to be incurred in connection with the Merger. These forward-looking statements
involve certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated by such forward-looking statements
include, among others, the following possibilities: (1) estimated cost savings
from the Merger cannot be fully realized within the expected time frame; (2)
revenues following the Merger are lower than expected; (3) competitive pressure
among depository institutions increases significantly; (4) costs or difficulties
related to the integration of the businesses of PHFG and the Company are greater
than expected; (5) changes in the interest rate environment reduce interest
margins; (6) general economic conditions, either nationally or in the markets in
which the surviving corporation will be doing business, are less favorable than
expected; or (7) legislation or changes in regulatory requirements adversely
affect the businesses in which the surviving entity would be engaged.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Not applicable.
(b) Not applicable.
(c) The following exhibits are included with this Report:
Exhibit 2.1 Agreement and Plan of Merger, dated as of June
1, 1999, between PHFG and the Company(1)
Exhibit 10.1 Stock Option Agreement, dated as of June 1,
1999, between PHFG (as grantee) and the Company
(as issuer)(1)
Exhibit 10.2 Stock Option Agreement, dated as of June 1,
1999, between PHFG (as issuer) and the Company
(as grantee)(1)
Exhibit 10.3 Form of letter agreement between affiliates of
the Company and PHFG(1)
Exhibit 10.4 Form of letter agreement between affiliates of
PHFG and PHFG(1)
- -----------------------------
(1) To be filed by amendment
3
<PAGE> 4
Exhibit 99.1 Press Release, dated June 2, 1999
Exhibit 99.2 Analysts Presentation
Exhibit 99.3 Amendment, dated as of June 1, 1999, to the Rights
Agreement, dated as of November 27, 1990 and
amended and restated as of September 4, 1998,
between the Company and Registrar and Transfer
Company, as Rights Agent.(1)
Exhibit 99.4 Amendment, dated as of June 1, 1999, to the Rights
Agreement, dated as of September 12, 1989, between
PHFG and American Stock Transfer & Trust Company,
as Rights Agent (1)
- -----------------
(1) To be filed by amendment.
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES HERITAGE FINANCIAL GROUP, INC.
By: /s/ Peter J. Verrill
--------------------------------------------
Name: Peter J. Verrill
Title: Executive Vice President,
Chief Financial Officer and Treasurer
Date: June 2, 1999
5
<PAGE> 1
EXHIBIT 99.1
For Immediate Release
For Further Information:
At Peoples Heritage, contact: At Banknorth, contact:
Brian Arsenault, SVP, Corp. Communications William H. Chadwick, President
(207) 761-8517 and CEO
(802) 860-5560
Peoples Heritage to Acquire Banknorth
and Create a $17 Billion Banking Company
Extends Franchise to Vermont and Upstate New York
Banknorth Name to be Retained
(Conference call re this announcement at 2 p.m., eastern time, today, June 2,
1999. Conference call telephone number: 1-800-946-0742, confirmation code
704970)
Portland, Maine, June 2, 1999 - Peoples Heritage Financial Group, Inc.
(NASDAQ:PHBK) announced today that it has reached a definitive agreement to
acquire Banknorth Group, Inc. (NASDAQ:BKNG) in a transaction valued at $780.7
million. The acquisition will create a $17 billion multi-state banking and
financial services company.
The transaction will provide the Company its initial entry into Vermont and
Upstate New York while expanding its presence in Massachusetts and New
Hampshire. Peoples Heritage, headquartered in Portland, Maine, currently has the
largest bank deposit market share in Maine and New Hampshire, the eighth largest
market share in Massachusetts and a bank in north-central Connecticut.
William J. Ryan, Peoples Heritage Chairman, President and Chief Executive
Officer, said that his Company will take on the Banknorth name.
"Our new name will more clearly represent our presence in every New England
state except Rhode Island and our entry into Upstate New York," said Mr. Ryan.
"We also hope to send the market a clear message that we are truly a commercial
banking company and not a traditional thrift."
<PAGE> 2
"Geographically, we are executing a natural, contiguous extension of our
franchise which makes us the dominant community banking franchise in virtually
all of New England."
Under the terms of the definitive agreement, shareholders of Banknorth will
receive 1.825 shares of Peoples Heritage common stock for each whole share of
Banknorth common stock plus cash in lieu of any fractional share interest.
Approximately 42.9 million shares of Peoples Heritage stock will be issued in
the transaction, including shares issuable upon the exercise of substitute stock
options. The exchange will be tax free and accounted for as a pooling of
interests.
Based on a closing price of $18.00 per share of Peoples Heritage on June 1,
1999, the cash equivalent value of the deal is $32.85 for each share of
Banknorth stock. The price equates to 2.35 times the book value of Banknorth at
March 31, 1999 and 14.6 times estimated 1999 earnings per share.
Under the terms of the definitive agreement, a 21-member Board of Directors of
the resulting company will include six of the current directors of Banknorth.
"We are pleased to achieve this affiliation with Peoples Heritage which, we
believe, serves the long-term interests of our shareholders, and affirms our
commitment to serving the banking needs of customers throughout our market area
- -- from first-time homeowners to small businesses, from families buying and
insuring an automobile to those customers planning for retirement," said William
H. Chadwick, President and Chief Executive Officer of Banknorth. "As giant banks
continue to emerge, it is important that institutions with the community banking
style of the "new" Banknorth be here to serve `Main Street' New England and
Upstate New York.
The agreement is subject to the approval of the shareholders of both companies
and requisite regulatory approvals. It is expected that the transaction will be
closed by year-end. The operational integration of the two companies is expected
to be completed during the second quarter of 2000. As part of the agreement,
each party provided the other an option to purchase 19.9 percent of its
outstanding common stock under certain circumstances. Due diligence is to be
completed by both parties within a week.
The transaction is expected to be accretive to earnings during the first full 12
months following the operational integration. For calendar year 2000, the
transaction is expected to be 4 cents dilutive because anticipated cost savings
will be realized for only about half the year while the additional shares will
be issued for the full year. In 2001, the transaction is estimated to be
accretive by 3 cents per share and in 2002 by 4 cents per share.
Peoples Heritage had $12.6 billion in assets at March 31, 1999. It operates
Peoples Heritage Bank in Maine, Bank of New Hampshire throughout the state,
Family/SIS Bank in Massachusetts and Glastonbury Bank & Trust in Connecticut.
The Company also operates
2
<PAGE> 3
subsidiaries in insurance, investments, trust services, mortgage banking and
equipment leasing; and has 221 banking offices and 287 ATMs.
Banknorth Group had total assets of $4.4 billion at March 31, 1999. It operates
eight community banks, The Stratevest Group, a $4.0 billion investment
management company, and Banknorth Mortgage Company, Inc. It operates 101 banking
offices and 145 ATMs in Massachusetts, New Hampshire, Vermont, and Upstate New
York.
(This press release contains certain forward-looking statements with respect to
the financial condition, results of operation and business of the Company
following the completion of the acquisition that are subject to various factors
which could cause actual results to differ materially from such projections or
estimates. Such factors include, but are not limited to, the possibility that
anticipated cost savings and revenue enhancements might not be realized and that
adverse general economic conditions or an adverse interest rate environment
could develop. A current report on Form 8-K filed on or about June 2, 1999
discloses these factors more fully.)
(end)
3
<PAGE> 1
Exhibit 99.2
PEOPLES HERITAGE FINANCIAL GROUP, INC.
AND
BANKNORTH GROUP, INC.
COMBINE TO FORM:
BANKNORTH GROUP, INC.
THE PREMIER COMMUNITY BANK FRANCHISE IN THE NEW ENGLAND REGION
June 2, 1999
<PAGE> 2
DOMINANT COMMUNITY BANK FRANCHISE
Adds second largest Vermont market share
Fills in central and western Massachusetts
Provides entry to upstate New York
Expands New Hampshire franchise
Franchise Map
<PAGE> 3
DOMINANT COMMUNITY BANK FRANCHISE
PRO FORMA
---------------------------------------------------------
DEPOSITS (a) BRANCHES MARKET SHARE (a) RANK
Maine $2,797,553 74 22.02% 1
New Hampshire 3,381,251 95 19.48 1
Massachusetts (b) 2,979,404 82 5.95 2
Vermont 1,519,803 36 20.86 2
New York (b) 925,005 26 3.73 10
Connecticut (b) 236,912 7 0.95 15
(a) SNL Branch Migration DataSource
(b) Market share and rank are only for counties where pro forma company has a
presence
<PAGE> 4
OVERVIEW - CONTINUATION OF A WINNING STRATEGY
CONSISTENT WITH PEOPLES HERITAGE ACQUISITION PHILOSOPHY
Quality organization with leading market position
Perfect expansion for PHBK franchise:
Vermont markets are similar to Maine, PHBK KNOWS how to bank rural
markets
Upstate New York has many of the same attributes as current PHBK
markets and many of the competitors that PHBK has successfully
competed with in the past
Greatly improves PHBK's Western Massachusetts franchise, Now #2 in
market share where the pro forma company has a presence
Favorable impact on loan mix, funding, net interest margin and credit quality
Accretive to GAAP and Cash EPS with no revenue enhancements
<PAGE> 5
A GREAT FRANCHISE WITH MARKET POTENTIAL
<TABLE>
<CAPTION>
MARKET 2000
ASSETS CAP ROA (1) ROE(1) P/E(2)
------ --- ------- ------ ------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
PRO FORMA BANKNORTH(3) $16,933 $2,646 1.23 16.87 10.2x
M&T Bank Corporation 20,285 4,045 1.33 16.49 14.6x
North Fork Bancorporation, Inc. 11,221 2,912 1.90 24.54 11.8x
Sovereign Bancorp, Inc. 23,188 2,116 0.77 14.29 9.8 x
Valley National Bancorp 5,706 1,608 1.73 17.17 14.1x
Keystone Financial, Inc. 6,830 1,548 1.21 13.35 14.1x
Hudson United Bancorp 7,046 1,227 1.46 22.23 11.2x
Commerce Bancorp, Inc. 5,634 1,106 1.10 18.08 15.5x
Webster Financial Corporation 8,849 1,044 0.92 15.47 11.1x
- ----------------------------- ------- ------ ---- ----- ------
MEDIANS(4) 1.27 16.83 12.9X
</TABLE>
(1) First quarter 1999 operating
(2) First Call consensus estimates for group, pro forma consensus estimate for
Banknorth
(3) Pro forma company, PHBK and BKNG
(4) Excludes Banknorth
<PAGE> 6
TRANSACTION SUMMARY
FIXED EXCHANGE RATIO: 1.825 PHBK shares for each BKNG share
PRICE PER SHARE: $32.85 per BKNG share*
TRANSACTION VALUE: $773.2 million
ACCOUNTING / TAX TREATMENT: Pooling of Interests / Tax Free Exchange
CROSS LOCK-UP OPTION: 19.9%
WALKAWAY: Down 20% absolute and down 20% relative
to the NASDAQ Bank Index
ESTIMATED ONE-TIME MERGER COSTS: $40.5 million after tax
COMPANY NAME: Banknorth Group, Inc.
BOARD OF DIRECTORS: Banknorth 6
Peoples Heritage 15
* Based on PHBK's closing price per share of $18.00 on June 1, 1999
<PAGE> 7
TRANSACTION MULTIPLES
IMPLIED PRICE PER BKNG SHARE: $32.85
PREMIUM TO RECENT MARKET PRICE: 23%
PRICE / STATED 3/31/99 BOOK VALUE PER SHARE: 235%
PRICE / 1999 FIRST CALL ESTIMATED EARNINGS PER SHARE: 14.6 x
PRICE / 2000 FIRST CALL ESTIMATED EARNINGS PER SHARE: 13.3 x
BKNG OWNERSHIP: 28.9%
<PAGE> 8
TRANSACTION TIME TABLE
EXPECTED SHAREHOLDER APPROVAL: Q3 - 1999
EXPECTED CLOSING: Q4 - 1999
EXPECTED SYSTEMS CONVERSION: Q2 - 2000
<PAGE> 9
TRACK RECORD OF SUCCESSFUL ACQUISITIONS - EPS GROWTH
Operating Earnings Per Share
ORIGINALLY REPORTED EARNINGS PER SHARE
1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ----
$0.50 $0.76 $1.03 $1.11 $1.30 $1.40
COMPOUND GROWTH RATE: 22.9%
<PAGE> 10
TRACK RECORD OF SUCCESSFUL ACQUISITIONS - IMPROVED PROFITABILITY
Originally Reported Return on Equity
1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ----
7.9% 11.2% 13.7% 15.5% 16.5% 17.1%
<PAGE> 11
PRO FORMA BALANCE SHEET
AS OF 3/31/99
PEOPLES BANKNORTH PRO FORMA
HERITAGE GROUP COMBINED(1)
-------- --------- -----------
(Dollars in Thousands, Except Per Share Data)
Total Loans $ 7,067,467 $ 2,833,658 $ 9,901,125
Loan Loss Reserve 110,573 45,658 156,231
Intangible Assets 121,401 77,835 199,236
- ----------------- ----------- ----------- -----------
Total Assets $12,594,324 $ 4,338,522 $16,932,846
=========== =========== ===========
Total Deposits $ 8,217,154 $ 3,573,011 $11,790,165
=========== =========== ===========
Shareholders Equity $ 905,178 $ 324,465 $ 1,189,143
=========== =========== ===========
Shares Outstanding (3/31/99) 104,100 23,205 146,448
Book Value Per Share $ 8.70 $ 13.98 $ 8.12
Tangible Book Value Per Share $ 7.53 $ 10.63 $ 6.76
(1) Includes $40.5 million in after tax merger adjustments
<PAGE> 12
DIVERSIFIED LOAN PORTFOLIO
AS OF 3/31/99
PEOPLES BANKNORTH PRO FORMA % OF
HERITAGE GROUP COMBINED TOTAL
-------- --------- --------- -----
(Dollars in Thousands)
Residential Real Estate
Mortgages $2,099,833 $1,034,053 $3,133,886 32%
Commercial Real Estate
Mortgages 1,647,042 810,634 2,457,676 25%
Commercial Loans 1,197,341 548,498 1,745,839 18%
Consumer Loans and Leases 2,123,251 440,473 2,563,724 26%
- ------------------------- ---------- ---------- ---------- ---
Total Loans $7,067,467 $2,833,658 $9,901,125
========== ========== ==========
AVERAGE YIELD ON LOANS 8.36% 8.60% 8.45%
<PAGE> 13
STRONG DEPOSIT MIX
AS OF 3/31/99
PEOPLES BANKNORTH PRO FORMA % OF
HERITAGE GROUP COMBINED TOTAL
(Dollars in Thousands)
Demand Deposits $ 1,209,169 $ 471,253 $ 1,680,422 14%
Regular Savings 1,300,211 346,892 1,647,103 14%
Money Market & NOW Accounts 2,062,179 1,437,679 3,499,858 30%
Certificates of Deposit 3,645,595 1,317,187 4,962,782 42%
- ----------------------- ---------- ---------- ----------- ---
Total Deposits $ 8,217,154 $ 3,573,011 $11,790,165
=========== =========== ===========
Borrowed Funds $ 3,354,006 $ 362,371 $ 3,716,377
=========== =========== ===========
AVERAGE COST OF INTEREST BEARING LIABILITIES 4.19% 4.07% 4.16%
NET INTEREST MARGIN 3.86% 4.39% 4.03%
<PAGE> 14
PRO FORMA COMBINED EARNINGS
<TABLE>
<CAPTION>
2000 ESTIMATE(1) 2001 ESTIMATE(1)
-------------------- -------------------
DOLLARS PER SHARE DOLLARS PER SHARE
-------------------- -------------------
(Dollars in Thousands)
GAAP NET INCOME
- ---------------
<S> <C> <C> <C> <C>
Peoples Heritage $190,225 $1.80 $212,674 $2.01
Banknorth 58,139 $2.47 63,824 $2.71
After-Tax Cost Savings(2) 13,339 28,243
-------- --------
Pro Forma Operating Earnings $261,703 $1.76 $304,741 $2.05
======== ========
Net GAAP EPS Accretion / Dilution -2.2% 1.9%
- ---------------------------------------------------------------------------------------
CASH NET INCOME
- ---------------
Peoples Heritage $200,793 $1.90 $223,242 $2.11
Banknorth 63,331 $2.69 69,016 $2.93
After-Tax Cost Savings(2) 13,339 28,243
-------- --------
Pro Forma Operating Earnings $277,463 $1.87 $320,501 $2.16
-------- --------
Net Cash EPS Accretion / Dilution -1.8% 2.1%
Pro Forma Diluted Shares 148,638 148,638
</TABLE>
(1) First Call consensus estimates used for 2000, PHBK and BKNG grown at 11.8%
and 9.8% respectively for 2001
(2) Cost savings in 2000 will be delayed because system consolidation won't be
done until Q2-2000
<PAGE> 15
SUMMARY - TRADITION OF SHAREHOLDER VALUE
o Creates the premier community bank franchise in the New England region
o Banknorth is a natural extension to Vermont and New York
o Similar market economies
o Comparable customer demographics
o Compatible management styles
o Quality organization with proven management team
o Maintains earnings growth and superior financial performance
<PAGE> 16
NOTE ON FORWARD LOOKING INFORMATION
This presentation contains forward looking information for Peoples Heritage
Financial Group, Inc. and Banknorth Group, Inc. on a stand alone basis and a pro
forma combined basis. Actual results may vary materially from the forward
looking statements. Factors which could result in material variations from
forward looking statements include, but are not limited to: changes in interest
rates which could affect net interest margins and net interest income; delays in
cost savings measures or a failure to realize anticipated cost savings;
competitive factors which could affect non interest income, cost of deposits,
and interest income; and general economic conditions which could negatively
affect the volume of loan originations, the amount of loan losses and levels of
non interest income.
