Norwest Will Buy Foothill Group in $441-Million Deal : Finance: The agreement unites L.A.-based commercial lender with the nation’s 13th-largest banking firm.
Los Angeles-based Foothill Group Inc., one of the nation’s largest independent commercial finance companies, has agreed to be acquired by Norwest Corp. of Minneapolis for about $441 million in Norwest stock, the firms announced Monday.
Analysts applauded the definitive agreement as a plus for both companies, helping Norwest, America’s 13th-largest banking company, to diversify its business lending and giving Foothill a cheaper source of capital.
Under the agreement, expected to close later this year, each share of Foothill common stock will be exchanged for 0.92 Norwest common shares, and each share of Foothill preferred stock will be exchanged for 6.13 Norwest common shares.
Based on Norwest’s closing price of $28.125 in Monday trading on the New York Stock Exchange, Foothill common shares are valued at $25.875 each.
Foothill’s stock has been on a steady climb, beginning this year at $14.625 and closing Monday at a new high of $23.875, up 50 cents, in trading on the New York Stock Exchange. The deal was announced after the market closed.
Among stockholders, one potential winner is the San Francisco money-management firm Richard C. Blum & Associates, which bought its 130,000-share stake in Foothill about six months ago, Blum said in a telephone interview Monday.
Foothill Chairman Don L. Gevirtz, an active Democrat, helped finance last year’s successful reelection campaign by Blum’s wife, U.S. Sen. Dianne Feinstein.
Although Foothill Group is considered one of the premier players in its specialized field of lending to small- and medium-size companies with poor credit quality, analysts said it has recently run into ferocious price competition from big commercial banks that can tap into their deposit bases for low-cost funds.
By teaming with Norwest, which has $61.8 billion in assets, Foothill Group can instantly raise money more cheaply by piggybacking on the bank’s superior credit rating.
“It’s a real huge funding advantage for Foothill,” said Reilly Tierney, analyst for the Duff & Phelps credit-rating agency in Chicago.
The deal “will help assure our continued earnings growth by expanding our access to the capital markets and lowering our cost of funds,” Gevirtz and John F. Nickoll, president and co-chief executive of Foothill, said in a statement.
Gevirtz and Nickoll, who together founded Foothill in 1970, have prospered by shrewdly appraising the value of the corporate assets their loan clients offer as collateral. Foothill’s customers are considered too risky for conventional loans.
The same kind of skill goes into the company’s other main business, its Foothill Capital money-management subsidiary, which invests in the senior bank debt of distressed companies.
For Norwest, the acquisition more than doubles the size of its operations in asset-based lending and other forms of commercial finance that, while riskier, carry fatter profit margins than conventional lending.
The firm’s Norwest Business Credit asset-based lending unit had $507 million in assets as of March 31, whereas Foothill had finance receivables of $745 million.
Norwest and Foothill, in a joint statement, said Foothill and Foothill Capital will continue to operate under their own names as Norwest subsidiaries and will remain at their West Los Angeles headquarters.
One of the keys to the deal for both companies was keeping Foothill’s highly regarded managers and lenders in place.
“If Foothill felt in the slightest that this would change their culture, they wouldn’t have done the deal,” said Michael Corasaniti, analyst for Alex. Brown & Sons in New York.
“You know when you’re buying a company like Foothill, you’re not buying bricks and mortar, you’re buying the brains of the people involved,” echoed Henry K. Jordan, Foothill’s chief financial officer. Jordan said he expects that all of the company’s approximately 150 employees will remain with the firm.