SEC Deals Setback to First Bank’s Offer

The Securities and Exchange Commission on Friday dealt a sharp blow to First Bank System Inc.’s merger plans with First Interstate Bancorp when the federal agency ruled that First Bank must suspend its share repurchase program for two full years after the deal closes.

The ruling means that shareholders would not see as quick a payoff as expected from the First Bank proposal, since buying back shares was one of the key ways that the Minneapolis-based bank hoped to add value to the deal.

Investors, sensing improved odds for Wells Fargo & Co.’s rival and hostile bid, pushed Wells shares up $6.25 Friday to $217.25 in trading on the New York Stock Exchange. First Bank shares closed unchanged at $48.50, while First Interstate stock moved with Wells, up $3.375 to $138.875.

At those prices, San Francisco-based Wells’ offer was valued at $144.83 a share, or $11 billion total, while the First Bank bid lagged at $126.10 a share, $9.6 billion in all.

“I guess they’ll try to stay in the game,” Dean Witter analyst Paul Mackey said of First Bank, “but I don’t see how they can intelligently outbid Wells.”

“This development materially lowers the economic value of the First Bank System’s merger proposal for First Interstate shareholders,” Wells Fargo Chairman Paul Hazen said in a statement.

First Bank’s chief financial officer, Richard Zona, criticized the SEC ruling in a statement but said the decision “will not affect [the deal] in a material way.”

First Bank could take some comfort from the fact that earlier Friday, a judge in Delaware Chancery Court had rejected Wells’ legal effort to force First Interstate’s board to consider Wells’ offer. The court said First Interstate did not have to assess the rival bids strictly on the basis of their current market value.

Also, although it imposed the two-year suspension on stock repurchases, the SEC ruling cleared the way for First Bank to use a less cumbersome accounting method if its merger deal goes forward. First Bank contends that the approach has advantages over the method being used by Wells Fargo.