A New Deal fo First Interstate : INVESTORS : Wall St. Sees Pair as Pretty Good Match

Wall Street’s attitude toward a First Bank System-First Interstate deal is that Wells Fargo would be a better fit--but First Bank will do.

Many big First Interstate Bancorp shareholders said Monday that they’re holding on to their stock, content to get First Bank shares if the deal goes through but hoping for a higher bid from Wells.

For its part, Wells was mum on its next move. Wells Chairman Paul Hazen noted that First Interstate Chairman William E.B. Siart has already chosen to ignore Wells’ offer to raise its bid; Hazen didn’t say he would further up the ante.

But Hazen charged that Siart’s acceptance of First Bank System Inc.’s $10.1-billion stock-swap offer over Wells’ bid worth as much as $10.6 billion “does not serve the best interests” of shareholders.

Major investors in First Interstate generally agreed. The First Bank offer “is OK, but it’s not as a good a deal as we could get from Wells,” said James Schmidt, manager of the John Hancock Regional Bank stock mutual fund in Boston and a First Interstate owner.

“This guy [Siart] is trying to save his job,” sniffed one money manager who requested anonymity. “This is not about [what’s best for] shareholders.”

Nonetheless, Schmidt and other shareholders said the bids were close enough that they couldn’t severely fault Siart, especially given the dangers inherent in Wells’ hostile bid. A forced combination could hold unforeseen problems, some said.

Nor is Wall Street universally adamant that Siart should officially put First Interstate up for auction .

“It’s usually the unsound bank that has to be auctioned,” said Jeff Simon, fund manager at New York-based MacKay-Shields Financial, a First Interstate owner.

First Interstate “is walking a fine line here, but I think [an auction] is what they’re doing” de facto, Schmidt said. Although Siart agreed to a “lock-up” clause with First Bank--a rival bidder would have to pay First Bank $200 million to bust the deal--that is viewed as a minor barrier to other suitors.

Investors pushed First Interstate’s stock slightly lower on Monday, reflecting some disappointment with First Bank’s offer of 2.6 shares for each First Interstate share. First Interstate eased 87.5 cents to $126.875, First Bank shares slipped $1 to $49.875 and Wells sank $1.625 to $210.625.

At Monday’s closing prices, he First Bank offer is worth $129.68 a share to First Interstate holders, while Wells’ offer of 0.625 of its shares for each First Interstate share is worth $131.64. Both offers would be tax-free exchanges.

But Wells’ willingness to raise its bid to 0.65 shares would put a value of $136.91 on its offer. What’s more, Hazen noted that Wells’ stock had reached $230.25 after it launched its bid on Oct. 18. At that price, a Wells bid of 0.65 shares would be worth $150 a share.

“One way or another it’s going to work out not too badly” for First Interstate shareholders who hang on, Schmidt said.

A First Bank-First Interstate combination gets good marks because First Bank, like Wells, is considered a very well-managed, cost-conscious bank with a highly valued stock. First Bank’s Midwest base also makes it a natural strategic partner for First Interstate.

“I think this is extremely positive for First Bank,” said Doug Pratt, manager of the Invesco Strategic Financial Services stock fund in Denver. He said he bought First Bank shares Monday.

Even so, some money managers were privately doubtful that First Bank could cut costs in a merger as adeptly as Wells. First Bank’s boast that a merger would mean its earnings per share in 1997 would be 18% higher than otherwise also was met with some skepticism.

Some analysts, noting that bank stocks in general have been falling in recent weeks, worry that the market is beginning to look ahead to potentially rising loan losses in 1996 because of strapped American consumers’ high debt levels.

“The challenges of banking are ahead of us, not behind us,” warned Simon. But he said that makes it imperative for solid banks such as First Bank and First Interstate to boost their competitive edge.

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Big Gainers

Stocks of First Interstate Bancorp and First Bank System have surged due in part to both companies’ strong recent earnings. Monthly closings except latest:

First Interstate Bancorp

Monday: $126.875, down $0.875

First Bank System

Monday: $49.875, down $1

Source: TradeLine

Stocks Pull Back

Pushed by takeover mania, major banks stocks are up sharply this year. But most also have dropped from their recent all-time highs, as some investors have cashed out. A sampling: *--*

1995 1995 Mon. close Drop from Stock low high and change ’95 high Bank of Boston $25.50 $50.13 $43.88, -0.13 -12.5% First Interstate 67.25 141.38 126.88, -0.88 -10.3% BankAmerica 39.50 65.00 58.63, -0.50 -9.8% Chemical Bank 35.75 64.75 58.38, -1.00 -9.8% Wells Fargo 141.00 230.25 210.63, -1.63 -8.5% Citicorp 38.50 74.00 68.00, +0.38 -8.1% Banc One 25.13 38.50 35.50, +0.63 -7.8% First Bank System 32.63 53.25 49.88, -1.00 -6.3% First Chicago 45.00 72.13 68.25, -0.13 -5.4% Mellon Bank 30.63 54.00 52.25, +0.38 -3.2%

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