NEWS ANALYSIS : Rival Bank Suitors Share Similar Business Philosophy : Mergers: Wells Fargo and First Bank may stress different strategies in bids for First Interstate. But they appear to be of like minds.
As Wells Fargo & Co. and First Bank System Inc. press the merits of their competing bids for First Interstate Bancorp, they make it sound as though their offers reflect widely opposing views about how to increase shareholder value and, indeed, about the future of the banking business.
San Francisco-based Wells Fargo emphasizes the tremendous cost-cutting potential from a combination with a Los Angeles rival whose statewide markets overlap its own. Wells also touts its commitment to using excess capital to buy back stock and drive per-share earnings ever higher.
Minneapolis-based First Bank, meanwhile, plays up the long-term growth potential of the 21-state market that would be created by a link-up with First Interstate. First Bank officials point to their success in technology, cross-selling and innovative product-delivery systems.
But analysts say the ironic thing about the confrontation is that the two suitors--and First Interstate itself--share basically the same business philosophy.
First Interstate Chairman William E.B. Siart, who reached out to First Bank as a friendly partner to fend off the hostile Wells Fargo, recently dismissed the Wells bid as “all about cost-cutting, grinding it down and buying back stock.”
James Marks, a San Francisco-based analyst for Sutro & Co., finds that argument disingenuous, since Siart and his ally, First Bank Chairman John F. Grundhofer--a Wells alumnus--like to buy back stock and grind out expenses as much as anybody.
And Wells, Marks noted in an interview Thursday, is a leader in using high-tech, alternative delivery systems--supermarket branches, telephone loan applications and so on--to boost revenue. The similarities with First Bank are striking.
But in order to sell their stories to the market and First Interstate’s shareholders, rival suitors must emphasize different elements, Marks said.
First Bank’s territory has little overlap with First Interstate’s, so it lacks the obvious cost-cutting potential of the Wells deal, where branches would be closed and employees laid off all across California.
Therefore, Grundhofer plays up the multistate growth potential and the projected annual savings of nearly $200 million that would accrue simply because its data-processing systems are highly compatible with First Interstate’s. Wells Fargo’s software is different, he says, so that combination would take time and money.
Marks puts all three banks among the five best-run in the industry. Long before Wells Fargo’s Oct. 18 takeover bid, he was telling customers to load up on First Interstate, saying its stock--then around $100 a share--would hit $135.
On the New York Stock Exchange Thursday, First Interstate gained $2.875 to close at $132.75; First Bank rose $1.125 to $52.375, and Wells jumped $4 to $215.375.
Wells Fargo has made no public statement since Monday, when Chairman Paul Hazen disparaged First Interstate and First Bank’s definitive merger agreement as not in the best interests of First Interstate shareholders.
But Wells Fargo partisans are making their case to analysts, news reporters and--most importantly--large holders of First Interstate stock.
The spin they put on their deal is that its initial value is greater and that Wells is committed to boosting earnings per share going forward by aggressively buying back stock.
At Thursday’s closing prices, Wells Fargo’s bid--0.65 share for each share of First Interstate--was worth $139.99 per share. The First Bank bid--2.6 shares for each First Interstate share--came to $136.18 per share.
Analyst R. Jay Tejera of Dain Bosworth in Seattle said the contending bids represent opposing “exit strategies” for First Interstate.
Under Strategy A, the Wells Fargo deal, “I hand the keys to the guy who’s buying me and say drive it any way you want but give me top dollar right now,” Tejera said.
Not surprisingly, he added, that’s the approach favored by many short-term-oriented money managers who hold First Interstate stock.
Strategy B, according to Tejera, works this way: “Let’s work together, but in exchange for giving you some control, you leave a little money on the table.”
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High Stakes
In the takeover fight for First Interstate Bancorp, the contending sides will target the institutions--such as mutual funds, investment partnerships and pension funds--that control the largest blocks of shares in the Los Angeles-based banking company. Here are the stakes of First Interstate’s 10 largest stockholders, as of June 30, in millions:
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Institution Shares Percentage Kohlberg Kravis Roberts & Co. 6.1 8.1%* Oppenheimer Group Inc. 4.5 6.0 Capital Research & Management 4.0 5.3 Lazard Freres & Co. 2.1 2.7 Michigan State Treasurer 1.9 2.5 Wells Fargo Institutional Trading 1.7 2.2 Bankers Trust New York Corp. 1.5 2.0 Mackay Shields Financial 1.4 1.9 Travelers Inc. 1.3 1.7 Janus Capital Corp. 1.2 1.6
*--*
*as of Dec. 31, 1994
Sources: First Interstate Bancorp, CDA Investment Technologies Inc.
