UPDATE: First Indiana buyout gives investors huge premium

First Indiana Corp.’s Milwaukee-based acquirer says it will pay $529 million, or $32 a share. That’s a whopping 45 percent premium to where First Indiana stock has been trading.

Rumors have swirled for weeks that First Indiana, the city’s largest remaining locally based bank, was in negotiations to be acquired. Industry buzz had focused on national powerhouses, such as San Francisco-based Wells Fargo.

Instead, First Indiana is selling to a modest-size regional player, Marshall & Ilsley Corp. Its M&I Marshall & Ilsley Bank is the largest Wisconsin-based bank, with 192 offices in the state. M&I also has offices in Arizona, Florida and other markets.

The branches will become Marshall & Ilsley branches after the deal closes late this year or in early 2008.

Marshall & Ilsley has assets of $56.5 billion. First Indiana is far smaller, with assets of $2.1 billion and 32 local branches.

“First Indiana has a long-standing relationship with M&I,” Bob Warrington, First Indiana’s CEO, said in a statement. “The two organizations knew each other well, and this partnership is a natural evolution of our relationship together.”

In the spring of 2006, First Indiana sold its trust division to Marshall & Ilsley for $15 million in cash.

Marshall & Ilsley announced before the market opened this morning that it had reached a definitive agreement to buy First Indiana.

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