B of A Board Will Hunt for Reason to Reject Merger Bid

BankAmerica’s board of directors meets here today to consider an unwanted merger offer from First Interstate Bancorp and to seek a plausible rationale for rejecting it.

Backed by lawyers and investment bankers, a three-man BankAmerica management war council will sketch out to board members the various alternatives to First Interstate’s offer of a package of securities that First Interstate values at $3.4 billion, or $22 a share.

The BankAmerica management group consists of Chairman and Chief Executive A. W. Clausen, President Thomas A. Cooper and Vice Chairman Frank N. Newman. The three are all thought to be predisposed against First Interstate’s bid, as are most of BankAmerica’s directors.

BankAmerica management is expected to argue that the company has greater value as an independent entity than as a subsidiary of Los Angeles’ First Interstate, at least at the most recent price offered by First Interstate.

BankAmerica and First Interstate sources agreed that BankAmerica will accept the offer only if it runs out of other choices.

Sources said BankAmerica management will propose Monday to bolster the value of the firm’s stock by accelerating the company’s asset-sale program, taking quick gains on valuable real estate holdings and perhaps accepting a minority equity investment from a foreign bank or other investor group.

An investment banking source familiar with First Interstate’s strategy said BankAmerica may have to pursue a “scorched-earth policy” by selling off the company’s best holdings in order to stay independent. Such an approach would short-change shareholders by robbing BankAmerica of future earnings, he said.

Directors in a Jam

The BankAmerica directors, who are charged with a fiduciary duty to maximize shareholder value, are in a jam. If they turn down First Interstate’s bid without coming up with a way to benefit owners of the company’s stock, they could face hundreds of millions of dollars in claims from angry shareholders. BankAmerica directors and officers are already named as defendants in 20 such suits.

“If they turn it down, whatever they say is not going to sound very plausible,” one merger and acquisitions expert said. He estimated the value of First Interstate’s bid at more than $21 a share.

BankAmerica common shares closed at $15.50 on the New York Stock Exchange on Friday, up 12 1/2 cents. Before First Interstate approached BankAmerica about a merger early last month, BankAmerica shares were selling at about $12.

To protect themselves against lawsuits, directors will have to provide persuasive evidence that BankAmerica’s stockholders will be better off if the company remains independent than if it accepts First Interstate’s offer. To do so, the merger specialist said, BankAmerica will have to find a way to convince investors that the company’s stock will be trading in the $25-a-share range by next summer.

Difficult Argument

First Interstate’s advisers say this is a very difficult argument for a company that does not expect to earn operating profits until the second half of next year.

BankAmerica’s key management players have strong personal reasons for spurning First Interstate’s bid, observers noted. The First Interstate offer was proposed in a letter last Tuesday by Chairman and Chief Executive Joseph J. Pinola, who spent 23 years at BankAmerica before joining First Interstate 10 years ago.

At the time Pinola left BankAmerica, he reported to Clausen, and Clausen has indicated he has no interest in selling out to his former subordinate. “I didn’t come back here to rearrange the chairs,” Clausen said at a press conference two weeks ago. He did not elaborate.

Clausen returned last month to the bank he led in the 1970s after BankAmerica directors asked for the resignation of former President Samuel H. Armacost.

Cooper, BankAmerica’s No. 2 executive, is said by insiders to harbor ambitions for the top job. And Newman, who joined BankAmerica from Wells Fargo & Co. last month, knows firsthand what happens to the weaker company in a merger. He was a key player at Wells Fargo when it swallowed up San Francisco’s Crocker National Bank and fired most of its top officers.