Hostile Takeover Mercenaries Prepare for War : Acquisitions: Wells Fargo’s aggressive bid for First Interstate becomes call to arms for veterans of past bruising bank battles.
Back in 1986, J. Richard Fredericks, the top-ranking bank analyst at Montgomery Securities in San Francisco, had a brainstorm that led him to persuade First Interstate Bank to mount a $3.2-billion hostile takeover run at BankAmerica Corp.
Two years later, H. Rodgin Cohen emerged as one of the leading strategists behind the next hostile takeover attempt in the once-staid banking world: Bank of New York’s bruising yearlong battle to acquire Irving Bank Corp.
Those two deals long stood as milestones in the encroachment of hostile takeovers into the staid banking world. But their architects have now teamed up to turn them into mere footnotes.
Fredericks, now an investment banker at Montgomery, and Cohen, the top banking lawyer at the New York firm of Sullivan & Cromwell, are the leading advisers behind Wells Fargo & Co.’s audacious hostile bid for First Interstate Bancorp, a nearly $11-billion deal that is the biggest hostile takeover attempt in U.S. banking history.
In fact, the Wells Fargo bid and First Interstate’s developing defense are bringing together veterans of many a takeover battle in the banking world. Morgan Stanley & Co. and the law firm of Skadden Arps, Slate, Meagher & Flom, who are helping First Interstate fight the bid, were both advisers to Bank of New York in the Irving takeover. Goldman, Sachs & Co., also part of the defense team, also represented First Interstate in its ultimately unsuccessful BankAmerica bid.
In all, say observers of the merger world, the Wells Fargo-First Interstate rumble brings together some of the top merger specialists in the country. In addition to Sullivan & Cromwell and Montgomery, Wells Fargo is advised by CS First Boston, an investment bank whose banking analyst, Thomas A. Hanley, is among the country’s best-regarded.
“What Fredericks and Hanley bring to the table is knowing how [bank] investors think,” said Campbell K. Cheney, a banking analyst at the San Francisco firm of Rodman & Renshaw. Cheney’s insight was validated Wednesday when the unexpected bid sent the stocks of both companies higher.
On the other side, First Interstate’s defense team of Goldman Sachs, Morgan Stanley, and Skadden Arps can boast deep experience derived from the bruising merger wars of the 1980s. Skadden Arps helped pioneer some of the most controversial--and effective--takeover assault and defense maneuvers of that era.
But most observers see Cohen and Fredericks as the heavyweights in this ring.
Of the two, Cohen is probably the better known in the world of bank mergers.
“He’s a titan in the industry for banking law,” Cheney said. Moreover, “he’s long predicted that hostile takeovers in the banking industry would become a fact of life. I’ve heard him give speeches on the subject.”
Cohen declined to be interviewed for this article, citing the delicacy of the Wells Fargo deal. But in the past he has been quoted as saying that as a rule he does not advocate hostile takeovers in banking because of their expense and difficulty. In fact, he participated in scores of friendly deals during the 1980s and ‘90s, when a wave of amicable regional mergers created a handful of so-called “super-regional” banks such as NationsBank and Banc One.
But when hostilities have broken out, the soft-spoken West Virginian has proved to have an appropriately ruthless streak. That was shown in May, 1988, when Bank of New York’s bid for Irving appeared to be dead after it was rejected by shareholders in a proxy fight.
Later accounts said it was Cohen who urged Bank of New York to press forward. When Irving unearthed a possible “white knight” purchaser in Banco Commerciale Italiano, Cohen scuttled that deal by arguing to federal regulators that if it went through, the Italian government, which owned a piece of the bank, should be forced to register as a bank holding company. Shortly after that, the Italians withdrew from the fray.
Fredericks is also a promoter of the idea that consolidation is inevitable in a progressively deregulated banking industry. It’s a concept he has called “Darwinian banking,” arguing that as competition across product lines and geographical boundaries increases, weaker banks will collapse or be swallowed up.
One of the first victims Fredericks had in his sights was the stately BankAmerica, parent of Bank of America, which was so humbled by loan losses and mismanagement in the mid-1980s that he argued it could be taken over by First Interstate, then half its size.
After talks aimed at a friendly merger broke down, Fredericks was among the First Interstate advisers advocating a hostile bid. Montgomery’s position as dealer-manager in the hostile tender offer was one of its biggest coups up to that time. The tender offer was later withdrawn after BankAmerica sold off its Charles Schwab brokerage unit, which stripped it of one of the jewels First Interstate was seeking, and reported continuing financial losses.
