Some Large BankAmerica Shareholders Rap Rejection of Takeover Bid
BankAmerica was sharply criticized Tuesday by several large shareholders for its formal rejection of First Interstate Bancorp’s $3.4-billion takeover bid.
“The decision to just sweep the offer away was shameful,” said Frank Terrizzi, whose Cincinnati-based Renaissance Investment Management holds 1.2 million BankAmerica shares. “The board should step aside and let the market decide.”
Added James Shelton, an analyst with the Texas Teacher Retirement System, which holds 650,000 shares: “The board is really not thinking about the welfare of the current shareholder.”
But brokers said small investors, who own about 70% of BankAmerica’s common stock, seemed apathetic about the board of directors’ decision Monday to fight the buyout offer from Los Angeles’ First Interstate.
“My B of A shareholders have suffered with the stock and tend to hold it more out sentiment than anything else,” said Merrill Lynch broker Steve Oliver in San Francisco. Many shares are held by present and former BankAmerica employees or by people whose parents or grandparents had done business with Bank of America founder A. P. Giannini.
“The reaction seems to be ho-hum,” added Henry L. Auwinger, manager of the San Francisco branch of the financial firm of Dean Witter Reynolds.
Such lethargy by individual shareholders, if it continues, could augur well for BankAmerica’s struggle to remain independent. First Interstate is counting on overwhelming support for its bid among institutions but must make significant inroads among individual holders for the deal to succeed.
First Interstate is preparing an exchange offer under which it would trade a package of securities it says are worth $21 a share for all outstanding BankAmerica shares. In composite trading Tuesday on the New York Stock Exchange, BankAmerica stock closed at $14.75 a share, down 25 cents.
First Interstate is seeking Federal Reserve Board approval for the merger and has filed a registration statement with the Securities and Exchange Commission for the securities it plans to use in the exchange offer. The SEC is expected to accept or reject the filing within weeks, while a Fed decision on the application may be months away.
Meantime, BankAmerica on Tuesday intensified its criticism of the First Interstate proposal, questioning whether regulators would approve a deal that BankAmerica says would drain $1.6 billion in common equity from the nation’s banking system. The First Interstate plan would substitute preferred stock and debt for about half of the value of BankAmerica’s common stock.
BankAmerica Chairman A. W. Clausen led a pep rally late Tuesday afternoon for hundreds of enthusiastic employees at the bank’s San Francisco headquarters. The crowd cheered when Clausen vowed to repel First Interstate’s unwelcome advances and said: “The gloves are off.”
All the workers were given anti-First Interstate buttons. Clausen said: “I’m going to wear this from here on out until they go away.”
Separately, Frank N. Newman, BankAmerica’s vice chairman and chief financial officer, charged Tuesday that the combined company would be so short of equity capital that it would have to raise a staggering $1.9 billion in new equity to reach the average level of the nation’s eight largest bank holding companies.
In an interview, Newman compared that figure to the largest common stock issue ever offered in the banking industry, the $430 million that Wells Fargo raised last year in a favorable market after its $1.07-billion purchase of San Francisco’s Crocker National Corp.
In contrast, Newman noted, First Interstate’s shareholders have reacted cautiously to its proposed takeover of beleaguered BankAmerica and the rating agencies are considering downgrading First Interstate’s securities. As a result, he said, any large equity offerings by First Interstate would be so dilutive as to destroy any potential financial benefits to both First Interstate and BankAmerica shareholders.
A First Interstate official dismissed Newman’s argument Tuesday, saying that BankAmerica’s plan to raise its own equity capital would be even more damaging to BankAmerica shareholders because it would dilute the value of their holdings.
BankAmerica announced Monday that it intended to sell new stock or bonds to improve its weak capital position. But Newman declined to elaborate Tuesday on what form the new offering would take, when it would be sold and what the total dollar value would be.
Newman also questioned First Interstate’s stated value of $21 a share for its buyout offer. First Interstate has offered 0.23 share of its own common stock, along with $4 of a new preferred stock and a bond with face value of $4.45 for each BankAmerica share.
The latter two securities would be difficult to trade, the BankAmerica executive contended, and the average shareholder would be lucky to realize $17 a share in cash.
“If that’s the case, why not let the market decide?” asked Shelton of the Texas teacher pension fund.
