State Street $275 million Spaces talked at 6.75-7.25% yield, up 18-22%

By Ronda Fears

Nashville, Jan. 10 - State Street Corp. launched a $275 million deal of mandatory convertible Spaces with price talk, but given the new structure most players had little to say about it.

The three-year deal is talked to price at a yield of 6.75% to 7.25% with an 18% to 22% initial conversion premium. It is set to price after the close Tuesday following a roadshow in Boston and New York that begins Monday.

The new structure was designed by Goldman Sachs & Co., which is a joint book-runner along with Deutsche Bank Securities Inc.

Goldman officials were not immediately available to explain the deal.

Generically, State Street said in its announcement that the Spaces consist of a combination of fixed-share and variable-share, collateralized forward purchase contracts. Quarterly payments will be collateralized with Treasuries. The first payment is due in May 2003.

Buyside sources said, it being Friday and with a new structure, they had not studied it.

State Street said it is looking to raise a total of $500 million with the convert, common and medium-term capital securities.

Proceeds will provide partial financing for the $1.5 billion acquisition of Deutsche Bank AG's global securities services, which could close before Jan. 31 or at least during first quarter.

State Street expects the acquisition to be dilutive to earnings by about 17-22c per share in 2003 but accretive in 2004 by about 1-3c.

Also Friday, State Street reported fourth quarter and 2002 results that were markedly improved due to the sale of its corporate trust business.

For fourth quarter, net income was $477 million, or $1.46 per diluted share, up from $171 million, or 52c a share, a year earlier. Revenue in the quarter totaled $1.45 billion, up 46% from $998 million.

For 2002, net income was $1 billion, or $3.10 per diluted share, up from $628 million, or $1.90 a share, in 2001. Revenue for the year gained 15% to $4.4 billion from $3.8 billion.

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