Ahmanson Proposes to Join Great Western
Hoping to marry the nation’s two largest savings and loans into a financial powerhouse, the corporate parent of Home Savings of America has offered to buy Great Western Financial Corp. in a deal valued at nearly $6 billion, sources close to the proposed transaction said late Monday.
The unsolicited offer by Irwindale-based H.F. Ahmanson & Co. would form the third-largest financial institution in California--after giant Bank of America and Wells Fargo. It would also result in the closure of more than 100 bank branches and the probable loss of hundreds of jobs, sources said.
Great Western, known for its folksy ads featuring actor Dennis Weaver and the Great Western Forum, home of the Los Angeles Lakers, and Home Savings, long the nation’s largest thrift, have both weathered a brutal California real estate recession that devastated many of their competitors over the past seven years.
The offer was apparently a surprise to Great Western. A spokesman for the thrift based in Chatsworth said the company had no immediate comment. A merger between the two would be the latest in a string of pairings among financial service providers in the 1990s, as the leading players have sought to gain marketplace clout through size and to reap gains for their shareholders from the massive cost-savings such deals usually provide.
In April, Wells Fargo bought out Los Angeles-based First Interstate for $13 billion after a bitter takeover battle with Minneapolis’ First Bank System.
Just last month, San Francisco-based First Nationwide Holdings swallowed Los Angeles-based Cal Fed Bancorp, creating the fourth-largest U.S. thrift, with $30 billion in assets.
These and other deals--including San Francisco-based Bank of America’s takeover of Los Angeles-based Security Pacific Bank in 1991--have led to the closure of hundreds of branches, the loss of many thousands of jobs and consumer complaints about higher prices and reductions in services.
Consumer groups have also expressed concerns that mergers of savings and loans would divert the industry from its traditional role of providing home mortgage loans and financing housing in poor and minority communities.
But banks and thrifts have argued that they have no choice but to merge, citing competitive pressures, the need to cut costs and a desire to expand into new markets and services.
“It’s our belief that, in order to be able to deal with competitive pressures and new demands, like improving our technology, you have to be stronger and more efficient,” said a source close to H.F. Ahmanson, who spoke only on the condition he not be named. “These institutions, in many ways, represent the perfect match.”
Under the Ahmanson proposal, each shareholder of Great Western would receive 1.05 shares of Ahmanson stock. Based on Ahmanson’s closing price Friday of $40.50 a share--the stock market was closed Monday for the Presidents Day holiday--that would value the deal at $42.525 for Great Western shareholders, a 24% premium over its latest price of $34.25 a share.
Between them, Great Western, the nation’s No. 2 thrift, and Home Savings have more than $93 billion in assets, 800 branches and 23,000 employees. The Ahmanson source said the company expects 150 to 200 branches to be consolidated “because a whopping number of our branches are within one or two miles of another.”
He said a deal, which would be subject to regulatory approval, would be expected to produce more than $400 million in cost savings annually.
“This is an unsolicited offer, but it is not intended to be beyond that,” the Ahmanson source said. Ahmanson wants a “friendly, negotiated transaction,” he said.
The two thrifts have held “informal, conceptual” discussions in the past, the source said, but there have been “no conversations in the last several months.”
“The logic of the merger has been so well recognized by everybody that it would be odd indeed if there had not been any conversations,” the source said.
Like many thrifts, both organizations have been moving away from traditional thrift businesses, such as home mortgages, and attempting to broaden their services to become more like banks.
Wall Street analysts have long expected mergers among California’s leading thrifts, but numerous rounds of negotiations between certain institutions in recent years have ended without agreements.
Some analysts have blamed the thrifts’ senior managers for being unable to put aside ego issues, such as how a new management team would be configured after a merger.
Meanwhile, although many California thrifts appeared to be logical takeover candidates for large Eastern banks eager to buy into the state’s rich consumer market, those bids never materialized.
Some bankers have said that Southern California’s lingering real estate recession made thrift purchases too risky. Other banks have viewed the basic mortgage lending businesses of California thrifts as relatively unattractive, and have chosen to enter California by providing niche financial services, such as credit cards.
Nonetheless, Ahmanson’s bid for Great Western could fuel a new round of merger activity, putting pressure on companies such as Glendale Federal, the 10th largest U.S. thrift, and Golden West Financial, ranked No. 3 nationally.
Many thrift stocks have risen sharply in recent week, as reports of improved fourth-quarter earnings--especially for California institutions--have boosted investors’ belief that the companies are becoming more appealing as takeover targets.
