First Interstate Rebuffs Wells’ Sweetened Bid : Banking: Filing with SEC reveals roles of financiers Buffett and Roberts in negotiations.
First Interstate Bancorp directors Monday rejected Wells Fargo & Co.'s sweetened takeover offer and reaffirmed their support for the proposed friendly merger with First Bank System Inc.
And in a filing Monday with the Securities and Exchange Commission, First Interstate also provided new insight into the roles that two of America’s best-known financiers, Warren E. Buffett and George Roberts, have been playing on opposite sides of Wells Fargo’s hostile bid.
According to the filing, Buffett--Wells Fargo’s largest shareholder and America’s second-richest person--kept Wells Chairman Paul Hazen from raising his bid even when First Interstate Chairman William E.B. Siart implied in an Oct. 31 meeting that his board would accept a 5% higher offer.
By refusing to go higher, Wells missed perhaps its best chance to secure First Interstate’s cooperation in a deal that Hazen called a “strategic imperative” for his San Francisco-based bank, Siart said in the SEC filing.
Five days after their meeting, First Interstate signed a definitive merger agreement with Minneapolis-based First Bank, a much smaller financial institution with which it had been holding preliminary merger discussions since early this year.
That agreement set up the current impasse, in which Wells has vowed to upset the planned marriage by taking its bid directly to First Interstate stockholders in either a direct exchange-of-shares offer or a vote to oust the First Interstate board--or both.
Wells and Hazen declined to comment Monday on either the SEC filing or the action by the First Interstate board.
Analysts say that Buffett and Roberts, a San Francisco-based partner in the New York leveraged buyout firm of Kohlberg, Kravis, Roberts & Co., remain the key players behind the scenes as the public phase of the takeover struggle has turned into a corporate shouting match.
“I believe KKR is generally siding with First Bank System,” said analyst Francis X. Suozzo of S.G. Warburg & Co. “At a price, they’d be willing to switch, but it’s quite clear they are not at that price today.”
On the other side, Suozzo sees Buffett as “an internal obstacle to Wells’ raising its bid.”
Through his Berkshire Hathaway Co., Buffett controls a 14% stake in Wells Fargo. Roberts manages KKR’s 8% stake in First Interstate, the largest block of shares to be voted in the coming proxy fight over the fate of the Los Angeles bank. The shareholder vote on the First Bank proposal is expected in March.
Wells’ current bid of two-thirds of a share of its stock for each First Interstate share, was valued at $140.92, or about $10.7 billion total, at Monday’s closing price of Wells stock. First Bank’s bid of 2.6 shares came to $135.85, or $10.3 billion total.
(First Interstate shares closed Monday at $133.75, down $1.25. First Bank fell 75 cents to $52.25, and Wells eased 37.5 cents to $211.375. All three stocks trade on the New York Stock Exchange.)
In the continuing war of words between the rival suitors, First Bank on Monday accused Wells of trying to mislead the public with a recent news release.
Wells announced Friday that it had received regulatory clearance to purchase up to 5% of First Interstate’s stock, but First Bank said in a statement Monday that Wells cannot actually begin buying shares for “some months” without violating federal securities laws.
First Bank said it would notify the SEC that Wells was trying “to create a false sense of momentum” for its offer.
Wells, for its part, complained to the SEC last week about full-page newspaper ads that First Bank ran Friday in The Times and other major California newspapers attacking the Wells offer. Wells said the ads violated SEC rules regarding statements that publicly traded companies may make during a takeover battle.
The SEC has not commented on either complaint.
Siart, in a letter to First Interstate shareholders Monday, said that the board of directors concluded that the First Bank offer is a lower-risk, higher-growth proposal that will be a “winning combination” for First Interstate shareholders.
“It is unfortunate,” he added, “that a respected institution like Wells Fargo would jeopardize its reputation by ignoring [First Interstate’s] decision and choosing instead to recklessly pursue its hostile takeover proposal.” He urged investors to refuse to tender their shares to Wells when it begins its exchange offer.
First Interstate, in its SEC filing, also disclosed an earlier unsolicited offer that Wells made to First Interstate on Feb. 11, 1994. That proposed deal--which First Interstate’s board rejected--that was even richer than the current one in terms of the proportion of Wells stock that was offered to First Interstate shareholders. It would have been worth $90 a share--or 0.69 Wells share--at the time.
A year and a half later, on Oct. 18, Wells went public with its hostile offer of 0.625 share. In an unusual gathering the following week, on Oct. 26, Hazen and Siart and two of their aides were joined by mega-investors Buffett and Roberts.
In that meeting, Hazen informally floated a bid of 0.65 share, but retreated when Siart and Roberts showed no interest. As described in the filing, Roberts’ role was to push Wells for a bid of 0.7 share. He said the Wells merger presented too much risk to First Interstate at any lower price.
Then, in their Oct. 31 meeting, Siart told Hazen that First Interstate “might consider further exploratory discussions” if Wells could bump its bid up to 0.68 share, according to the filing.
“Mr. Hazen then excused himself from the meeting,” the filing says. “Upon his return, Mr. Hazen stated that he had consulted with Mr. Buffett [and] reiterated that the maximum exchange ratio that Wells and its major shareholders would consider was 0.65 shares.”
Although Wells later raised its bid to two-thirds of a share, the increase came Nov. 13, after First Interstate had already struck its deal with First Bank.
Analyst Campbell K. Chaney of Rodman & Renshaw in San Francisco said First Interstate investors he visited in New York last week seemed ready to favor a 0.70-share Wells bid, “but will Buffett allow them to raise it there?” As for Roberts, Chaney said: “If he blesses the deal, the rest of the [First Interstate] shareholders will fall in behind.”