First Interstate Ups Ante in Its Bid for BankAmerica
First Interstate Bancorp on Tuesday raised the value of its offer to buy BankAmerica by $600 million to $3.4 billion, increasing the pressure on BankAmerica’s board of directors to agree to what would be the largest bank merger in U.S. history.
Moving to head off BankAmerica’s certain rejection of his month-old, $2.8-billion acquisition bid, Joseph J. Pinola, First Interstate chairman and chief executive, said in a letter to BankAmerica’s directors that a combination of the two banks would provide “unique and substantial advantages for the shareholders, employees and customers of BankAmerica and First Interstate.”
The sweetened offer came one day after BankAmerica’s management decided to urge the company’s directors to reject the First Interstate bid as inadequate. The directors will meet next Monday to consider First Interstate’s latest proposal.
BankAmerica said it will “review the new First Interstate proposal with its financial and legal advisers and will take action as appropriate.”
Pinola asked for a meeting with BankAmerica’s management and investment advisers before the Monday board session to explain the terms of the offer in greater detail. First Interstate, trying to turn up the heat on the BankAmerica board, also asked for a response to the new proposal “shortly after” the board meeting.
First Interstate, based in Los Angeles, is the nation’s ninth-largest banking company. BankAmerica is the parent company of San Francisco’s Bank of America, the second-largest U.S. bank.
BankAmerica has lost nearly $1 billion over the last 18 months, leaving it vulnerable to unwanted takeover bids.
“This is something that will get close scrutiny” by the BankAmerica board, said Donald Crowley, a bank analyst in San Francisco for the New York financial house of Keefe, Bruyette & Woods. He called the new bid “much more attractive” than First Interstate’s first offer and said it increases the likelihood that Pinola will succeed in merging the two banking institutions.
He cautioned, though, that it is not “a lead-pipe cinch.”
Pinola, 61, who spent 23 years as a BankAmerica executive before moving to First Interstate a decade ago, has made it clear that he wants to lead one of the nation’s premier banks by combining his institution with BankAmerica.
In striking now with a more valuable offer, even before BankAmerica formally rejected his first bid, Pinola appears to be trying to take advantage of upheaval at BankAmerica, which was reflected in the removal of the chief executive, Samuel H. Armacost, three weeks ago and the return to power of his predecessor, A. W. Clausen.
Clausen has vowed to return BankAmerica to profitability by cutting costs and selling unwanted assets.
Depressed Stock Price
BankAmerica’s stock price is depressed, making Pinola’s offer more attractive to shareholders. First Interstate values its offer, which consists of a package of stock and other securities, at $22 a share. BankAmerica common shares closed Tuesday at $13.875, down 25 cents.
“Pinola is making his move before the turnaround at BankAmerica can get going and before (the new) management there becomes further entrenched,” a former BankAmerica official said Tuesday.
First Interstate is proposing to exchange three types of securities for each BankAmerica common share. They are: .22 of a share (worth $11.99 at Tuesday’s stock market close) of First Interstate common stock, a bond with face value of $3 at the time the merger is completed, and a share of preferred stock, which First Interstate values at $7.
The bond, which was not part of First Interstate’s original offer, appears to provide BankAmerica with some bargaining room because the interest rate it will pay is subject to agreement by both banks.
First Interstate said the merger would be advantageous to BankAmerica’s shareholders because it would restore their dividend income immediately. BankAmerica suspended the dividend on its common shares in January.
Value of Offer Questioned
Moreover, First Interstate said the combination would create the nation’s broadest network of retail bank offices and strengthen BankAmerica’s weak capital base. The merger also would lead to cost savings of between $475 million to $695 million a year, according to a study conducted for First Interstate.
The value of First Interstate’s offer is certain to be questioned by BankAmerica and independent bank analysts. The original bid, which First Interstate said was worth $18 a share, was generally valued by outsiders at $15 a share.
First Interstate noted that its offer of $3.4 billion for all of BankAmerica exceeds the company’s book value, or assets minus liabilities.
In raising the ante, First Interstate is “hoping for no worse than a neutral attitude from (BankAmerica’) directors. It’s going to be a little tougher for them to say no,” said Dan Williams, a bank analyst for the San Francisco brokerage house of Sutro & Co.
