Italian Suitor Comes to Rescue of Irving Bank : Banco Commerciale Seeks 51% of Shares in Effort to Fend Off Bank of N.Y.

Irving Bank, whose officers scoured the globe in search of a “white knight” to save it from becoming the first major victim of a hostile takeover attempt in U.S. banking history, announced Monday that it has approved a bid for 51% of its stock by a leading Italian bank.

The deal, which also includes Irving’s issuing a special dividend of up to $10 a share and nearly doubling its annual common stock dividend to $4.50, is designed to stave off a tender offer from Bank of New York, a rival of Irving’s in several important banking markets. Bank of New York has been pursuing a hostile takeover bid for Irving since last September, when Irving Chairman Joseph A. Rice rebuffed a friendly overture.

Reflecting great personal animosity between the managements of the two banks, the battle has been fought through a series of bitter newspaper advertisements as well as a lawsuit filed by Irving against Bank of New York. A state appellate court last week rejected Irving’s challenge to a conditional approval of Bank of New York’s bid by the Federal Reserve Board.

Board Backs Offer

The latest twist met with an underwhelming response from Wall Street investors and securities analysts Monday. Irving’s stock dropped $1 a share to $60.375; Bank of New York’s stock rose $1 to $31.625.

“My own opinion is the shareholders will be better off going with Bank of New York’s bid,” said Joan T. Goodman, banking analyst for the money management firm of Pershing & Co.

In the latest development in the noisy fight between two money-center banks, Irving said its board had agreed to support a tender offer for 51% of the bank’s stock at $65 per share in cash from Banco Commerciale Italiana, the second-largest commercial bank in Italy. BCI is 90% controlled by an agency of the Italian government.

Bank of New York’s competing offer, which involves a combination of $15 in cash and 1.575 of its common shares for each of Irving’s roughly 18.1 million common shares, has been valued by banking professionals at between $63 and $68. But Bank of New York argued Monday that the BCI offer should really be valued at $63 or less, because as an all-cash deal it will be fully taxable to shareholders.

“We’re calling this a ‘white-serf’ deal because it’s considerably less than a knight,” said Owen Brady, vice president for public and investor relations at Bank of New York. “It’s the first time in living memory that a bidder has offered less than what’s on the table.”

Brady also said Bank of New York believes that the acquisition of Irving Bank by a unit of a foreign government would be impossible because it would violate the Bank Holding Company Act.

The latest development gives Irving shareholders, many of whom have suffered through years of mediocre performance under Rice and his management team, a choice between two offers of more than $1.1 billion--one from Bank of New York at a slightly lesser price but more likely to be consummated quickly and the second at a higher price but vulnerable to regulatory and operational snags.

Investment analysts on Wall Street questioned Irving’s ability to deliver the $10-a-share special dividend, a critical part of the anti-Bank of New York offer, to shareholders. The dividend is to be financed out of such asset liquidations as the sale of the bank’s landmark headquarters at One Wall Street and of its 39% ownership in Banca della Svizzera Italiana--which it originally purchased from BCI.

“What if the asset sales don’t fall into place?” asked Livia S. Asher, an analyst for the investment firm of Fox-Pitt Kelton in New York.

For its part Irving said it would gain from a synergistic relationship with BCI’s existing presence in the corporate finance, investment management, and trade finance businesses, among others. “Our shareholders will benefit far more from the affiliation with BCI than the proposal advanced by BNY,” Rice said in a prepared statement.

Asher and others also questioned whether BCI could gain Federal Reserve Board approval for its Irving takeover in time to satisfy the short-term needs of Irving’s current shareholders. The Bank of New York-Irving fight has been going on so long that most of Irving’s shareholders are believed to be Wall Street arbitragers--speculators in takeover-prone stocks--whose profits depend on swift resolutions to takeover battles. Bank of New York already has Fed approval for its proposed takeover.

“The arbs don’t want to wait out all the options,” Asher said.

Many on Wall Street believe that Irving would benefit most from a merger with Bank of New York, which has proven its ability to improve earnings and operational performance at acquired companies--most recently with Long Island Trust Co., a moribund suburban bank that it acquired in 1987 from BCI.

“BCI has proven in the past to be an extremely passive investor,” said James Wooden, an analyst for Shearson Lehman Hutton. Compounded by Irving’s traditionally lackluster performance, the combination could make Irving shares “a worse hold” for investors than they are now.

A potentially decisive indication of the sense of the Irving shareholders may come Saturday at Irving’s annual meeting, when Bank of New York will put up a slate of 16 nominees for Irving’s board of directors.