First Interstate Seems Stymied in Quest for B of A
First Interstate Bancorp appeared stymied Tuesday in its bid to acquire BankAmerica and seemed likely to remain so unless the wounded giant’s financial condition rapidly deteriorates.
BankAmerica’s board of directors said Monday that the bank has no interest in First Interstate’s $3.4-billion merger bid and asked First Interstate Chairman Joseph J. Pinola to withdraw it.
BankAmerica also said its new management is conducting an “exhaustive” study of the company’s prospects and strategy but did not say when it would complete the review. BankAmerica stock closed Tuesday on the New York Stock Exchange at $15.25 a share, off 87.5 cents. First Interstate refused Tuesday to accede to BankAmerica’s request that it withdraw the offer.
Options Under Review
Without elaborating, a spokesman for the Los Angeles-based company said its officers and financial advisers are “reviewing our options.”
Those options include conceding defeat--not likely, according to those who know Pinola--as well as a temporary tactical withdrawal of the bid or the launching of a hostile offer for BankAmerica, the San Francisco-based parent of Bank of America.
While Pinola has shown a penchant for the big play, a hostile bid for BankAmerica would expose First Interstate and its shareholders to great risk, given BankAmerica’s $5 billion in bad loans and real estate and billions of dollars more in loans to troubled Third World borrowers.
Under First Interstate’s proposal for a friendly transaction, the suitor would have a chance to closely scrutinize BankAmerica’s problem-plagued loan portfolio and to back out or renegotiate the transaction if it did not like what it saw.
Moreover, hostile takeovers in the banking industry are rare, said James McDermott, chief of research for the Wall Street investment firm of Keefe, Bruyette & Woods, which specializes in banks.
Unfriendly buyouts are unusual in any regulated industry, he added, because regulation is designed to assure an orderly marketplace and tends to limit competition.
However, at least one federal regulator said Tuesday that government supervisors would not necessarily oppose a hostile bid by First Interstate.
The only concern regulators might have about a hostile bid, he said, is that it might distract BankAmerica’s management “from doing the job it is supposed to be doing.”
“Everybody is waiting for First Interstate’s next move,” said Stephen Berman, a New York banking analyst with Nomura Securities International.
Change in Posture
Whatever that move is, First Interstate was not talking about it Tuesday--a marked change in its posture and a sign that Pinola may have been caught unprepared by BankAmerica’s cleverly crafted response.
Sources said BankAmerica’s management, directors and investment adviser Salomon Bros. searched hard for a reason to reject First Interstate’s bid outright, but apparently could not find one that was legally and financially defensible.
“It looks like Salomon couldn’t come up with an opinion that this is totally out of the question,” one BankAmerica officer said. The bank, therefore, merely asked First Interstate to withdraw the bid, apparently calculating that Pinola would not risk a hostile takeover attempt or that BankAmerica could muster support for remaining independent if he did.
From First Interstate’s standpoint, delay is undesirable because it could allow internal opposition to the deal to develop. At least one board member of a major First Interstate subsidiary bank has expressed private reservations about the proposed merger.
Meanwhile, First Interstate apparently faces a united front at BankAmerica. A source close to that company’s board said there was no sentiment on the board to sell the company. “Just the opposite,” he said.
