B of A Will Attack First Interstate Bid as Too Conditional : Suitor Says It Would Sell Seafirst Unit in Washington, Buy Back $2 Billion in Assets

BankAmerica plans to attack First Interstate Bancorp’s threatened hostile tender offer as overly conditional and to argue that BankAmerica’s California branch network alone is worth more than the $3.2 billion First Interstate is offering for the whole company, investment banking sources said Tuesday.

The BankAmerica defensive strategy will include appeals to the company’s shareholders to give BankAmerica management time to carry out a plan that management says will eventually create more value than the $21-a-share First Interstate is proposing to pay.

BankAmerica also will lobby regulators to disapprove the deal because First Interstate plans to infuse only $550 million in new capital into the combined company, a sum that BankAmerica thinks is less than half of what is needed, industry sources said.

Separately, First Interstate disclosed that it intends to sell BankAmerica’s Seafirst banking unit in Washington state if it succeeds in acquiring BankAmerica. First Interstate would then buy back about $2 billion in Seafirst assets and fold them into its First Interstate Bank of Washington subsidiary, First Interstate said in a filing with federal regulators.

First Interstate also pledged to sell off branches in a number of California communities to comply with antitrust laws. The proposed divestitures were detailed in publicly available portions of First Interstate’s four-inch-thick draft application to the Federal Reserve Board for permission to acquire ailing BankAmerica.

The application was filed with the Fed on Monday and copies of parts of it were made available to reporters Tuesday.

BankAmerica is the parent firm of San Francisco’s Bank of America, the nation’s second-largest bank.

Some Plans Undisclosed

First Interstate’s “post-acquisition operational and restructuring plans” were included in the application but were deemed “confidential” and were not made public. The unreleased data include anticipated cost savings, branch closings and layoffs.

This critical information is likely to emerge when First Interstate registers with the Securities and Exchange Commission data on the securities it plans to issue to pay for its acquisition of BankAmerica.

However, in internal documents and reports to Wall Street analysts, First Interstate has said it expects to realize cost savings of as much as $500 million a year by 1989, to close or sell as many as 250 overlapping branches and to accelerate BankAmerica’s current drive to sell assets and trim jobs.

BankAmerica currently is racing to divest itself of nearly $8 billion in assets it considers superfluous to its core business. First Interstate has told analysts that it would shed about $20 billion in BankAmerica assets shortly after the deal is closed and has already held talks with a number of major U.S. and foreign banks about buying pieces of BankAmerica.

First Interstate’s application disclosed that preliminary contacts regarding a possible combination between the two companies began in mid-1985, earlier than has been previously reported. But, despite these and subsequent formal and informal overtures, BankAmerica “has been unwilling to enter into substantive negotiations,” First Interstate said.

Indeed, one investment banking source labeled BankAmerica’s present posture “the Greta Garbo strategy” because it echoes Garbo’s famous line in the 1932 film “Grand Hotel”: “I vant to be alone.”

But that strategy has failed to deter First Interstate’s aggressive chairman, Joseph J. Pinola, so now sources close to BankAmerica are opening fire on First Interstate’s threatened tender offer.

“One of BankAmerica’s defenses will be: This isn’t a firm offer,” a source familiar with BankAmerica strategy said Tuesday.

‘Might Walk Away’

Aside from regulatory and shareholder approvals, First Interstate’s $21-a-share offer depends on “verification by First Interstate of the correctness of BankAmerica’s published financial statements.”

“That implies they might walk away from the deal even after shareholder approval,” contended an investment banking source close to BankAmerica. He said BankAmerica stockholders are unlikely to tender their shares to First Interstate when the company itself admits that it does not know what it is buying.

This source also said the bank’s management believes the First Interstate offer to be grossly inadequate, arguing that Bank of America’s huge California branch network is worth more than First Interstate is offering for the entire company.

Recent transactions have valued retail banks at between 5% and 10% of their total deposits. Using that formula, Bank of America’s approximately $50 billion in retail deposits in California should be worth between $2.5 billion and $5 billion to an acquirer. The source contended that $5 billion is more realistic because of B of A’s dominant California market share.

Meanwhile, the proposed merger appeared to be gaining favor with shareholders of both companies.

The investment manager for a firm holding nearly 1 million First Interstate shares said he was “neutral” about the plan, even though it would mean at least a short-term devaluation of his First Interstate holdings. He initially opposed the deal but now believes it holds some long-term benefits.

Some Sentiment for Merger

Among BankAmerica holders, sentiment for a sellout is growing. Werner Keller, chief of research for the Los Angeles brokerage house Bateman Eichler, Hill Richards, said he expects to recommend to the firm’s clients that they sell their 1 million BankAmerica shares to First Interstate in any future tender offer.

“I think it’s a wonderful offer,” Keller said. “It’s a high price. BankAmerica is going to have trouble . . . explaining to their shareholders that it’s worth more independent than what First Interstate is offering.”