First Market Bank merger moving along

First Market Bank, a private chain of banks mostly owned by the Ukrop family and Ukrop's Super Markets Inc., is moving toward its merger later this year with Bowling Green-based Union Bankshares Corp.

"There are a zillion reasons why a bank sells out," said Kent Engelke, chief economic strategist at Capitol Securities Management in Richmond.

"In this case, it's not a sale because bad things are happening," he said. "It's a combination of two strong banks that will create an even stronger bank and the predominant community bank in Virginia."

Engelke noted the merger will give First Market shareholders liquidity, meaning they could cash out. Markel Corp., a property and casualty insurance company in Henrico County, is a 40 percent minority investor in First Market.

The all-stock deal with Union Bankshares is valued at $105 million. The combined organization will be the largest community bank in Virginia, with 97 branches and more than $4 billion in assets.

Under terms of the agreement, shareholders of First Market will receive 6.7 million shares of Union common stock -- a 33 percent ownership stake in the holding company.

Union Bankshares' market capitalization by itself is $194 million. Its stock, which has traded between $9 and $29.20 over the past year, rose $1.16 yesterday to close at $14.30.

The combined entity should be worth about $300 million, Engelke said. That would mean First Market shareholders would have stock valued at nearly $100 million.

"If Union Bank rallies, the amount received by First Market's shareholders will increase," Engelke said.

The grocery trade publication Food World reported Tuesday that Ukrop's Super Markets Inc. has contacted possible buyers of the 28-store grocery chain. Company Chairman, President and CEO Robert S. Ukrop said yesterday that such reports were speculative.

His older brother, James E. Ukrop, chairman of First Market and former chairman of the family grocery business, could not be reached for comment yesterday.

However, he has said that the bank merger was "definitely not an exit strategy."

"I am having too much fun. I don't ever want to retire," Ukrop said in late March when the merger was announced.

The holding company will be called Union First Market Bankshares Corp. and be based in Richmond.

First Market Bank and Union Bank & Trust will be combined into the holding company's largest subsidiary, though it has not been determined what the bank will be called, said David J. Fairchild, chief executive officer of First Market Bank.

Fairchild said yesterday that the merger is moving smoothly toward an early October completion.

"The operative question is why did the Ukrops sell?" Engelke said.

"I think to offer liquidity to its shareholders and increasing the economies of scale should inherently increase shareholder value. It is my understanding it is an amicable deal and if the economy is now indeed recovering, all shareholders will benefit greatly."

The combined operations will create the fifth largest bank by deposits operating in the Richmond area and the sixth largest in Virginia, according to SNL Financial in Charlottesville.

Contact Carol Hazard at (804) 775-8023 or .