Early Wednesday, Minneapolis-based U.S. Bancorp and a Milwaukee-based financial services company, Firstar Corp., finally put all the rumors to rest.
Jack Grundhofer, U.S. Bancorp CEO, and his brother, Firstar Corp. CEO Jerry Grundhofer, announced they were soon to be co-workers; Jerry’s Firstar Corp. is buying Jack’s U.S. Bancorp for about $21 billion in a stock-swapping deal.
The new financial institution will create the nation’s ninth-largest banking company.
“We are creating the industry leader in growth, performance and diversification,” said Jerry Grundhofer.
Firstar will exchange 1.265 of its shares for each share of U.S. Bancorp’s, valuing U.S. Bancorp at $28.15 per share, $3.15 more than Wednesday’s close.
The newly merged company will remain in Minneapolis and retain the U.S. Bancorp name, but Jerry Grundhofer becomes the new CEO, and Jack moves to chairman before his expected retirement at the end of 2002.
The companies believe the merger enhances combined revenue growth potential, with an enlarged geographic territory including nine of the 15 fastest-growing states in the country.
Together, the banks will have 10 million customers at roughly 2,200 branches in 24 Midwestern and Western states.
“Our geographies fit together, our business lines complement each other, and we have a lot of other strengths to offer each other,” Jack Grundhofer said.
The newly created company will rank among the top five banks in branches, ATMs and home equity lending, and in the top ten in total consumer lending.
The deal is the largest in the financial services industry since last month’s $35 billion merger pact between Chase Manhattan and J.P. Morgan, and follows closely behind the recent Norwest-Wells Fargo merger.
The recent trend of financial institution mergers is fueled by increasing efficiency, automation, and customer savings produced by economies of scale.
First on the list for the newly merged company is a plan which calls for cutting 5 percent of their combined operating costs over the next several years.
These cuts are expected to remedy overlappings in administration and corporate support functions, and should take place after the deal closes sometime in the first quarter of 2001.
“We’re already two of the most efficient banking franchises in the country, so we can quickly devote our attention to enhancing our customer relationships, integrating our businesses, and remaining the low-cost provider in our key business areas,” Jerry Grundhofer said.
Firstar has roughly $74 billion in total assets and 1,200 banking offices across the country. The company experienced rapid growth with acquisitions of Star Banc Corp. in 1995, and Mercantile Bancorp of St. Louis in 1999.
U.S. Bancorp was created in 1997 when Minneapolis’ First Bank merged with Oregon-based U.S. Bancorp and adopted its name.
The company has been a heavy recruiter from the University of Minnesota and a donor to the Carlson School of Management.

Peter Frost covers business and welcomes comments to [email protected]. He can also be reached at (612) 627-4070 x3215.