Great Western Considers Bid
Great Western Financial Corp. said Tuesday it’s considering an unsolicited $6.5 billion takeover offer from H.F. Ahmanson & Co., which said it intends to buy its rival whether or not its management consents.
Great Western, the third-largest U.S. thrift, said it plans to “fully review and evaluate” the $47 a share bid by Ahmanson, the biggest U.S. thrift. Great Western hired Goldman, Sachs & Co. and Merrill Lynch & Co. to help get a better price, according to a person familiar with Great Western’s strategy.
Irwindale-based Ahmanson went directly to Great Western shareholders, seeking their approval a day after making its offer.
“We think we are the best fit,” said Charles Rinehart, Ahmanson chairman and chief executive.
The offer comes during an unprecedented wave of bank and thrift mergers. Companies are combining with the view that bigger is better, allowing them to slash costs while moving into new markets.
Chatsworth-based Great Western shares surged $10.625, or 31% a share, to close at $44.875 in trading of 10.1 million shares, making it the most active U.S. stock Tuesday. Ahmanson shares rose $4.375 to $44.875, an 11% jump, with 5.1 million shares changing hands.
Ahmanson, the parent of Home Savings of America, offered 1.05 of its shares for each of Great Western’s. The transaction would create the 11th-largest U.S. financial institution with $93 billion of assets, 13% of all California deposits and 600 branches in California, Florida and Texas.
“It looks like a pretty good deal,” said Lorne Abramson of Spare Kaplan Bischel. Abramson helps manage $2.8 billion for institutional investors. Spare Kaplan owns shares in both companies.
In a letter to Maher on Monday, Rinehart made an unsolicited offer to acquire Great Western at 2.4 times its book value and a 24% premium over its Friday closing stock price.
Ahmanson hired investment bank Credit Suisse First Boston and law firm Sullivan & Cromwell, the same team that guided Wells Fargo & Co.’s hostile $13 billion takeover of First Interstate Bancorp last year, one of the biggest U.S. bank transactions.
In a preemptive move, Ahmanson sued Great Western on Tuesday to prevent it using defenses to resist a takeover. It also asked Great Western shareholders, who meet April 22, to elect three candidates it nominated to Great Western’s board.
Ahmanson said it plans to purchase a minimum of $15 million of Great Western stock, pending approval from regulators. Rinehart said Ahmanson could acquire as much as a 15% stake in Great Western, which has a market capitalization of $6.18 billion and about 137 million common shares outstanding. This would increase Ahmanson’s bargaining power, Rinehart said.
Great Western remains vulnerable to offers from other banks and thrifts keen on expanding into California. The initial strategy will be to determine whether Ahmanson is willing to raise its offer, according to the person familiar with Great Western.
“This is not a definitive deal. Great Western may look to other alternatives,” said Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods.
Companies such as Washington Mutual Inc., which recently acquired American Savings Bank, and commercial banks, such as NationsBank Corp., which have an interest in expanding in the West, could step in and make a higher offer for Great Western, he said.
“There will be a ripple effect in the state,” Theurkauf said.
Rinehart said Great Western should embrace an offer that promises increased earnings. Ahmanson said the combined companies could cut $400 million in annual costs before taxes. The banks could close about 200 redundant branches in California and Florida, about 25% of their combined total.
Ahmanson predicted earnings, after being reduced 3% in 1998, would increase 9% in 1999 as a result of the takeover.
The tax-free stock transaction would use the purchase method of accounting, in which acquirers write off the difference between the purchase price and the target’s book value, or “goodwill.” Purchase accounting would let Ahmanson repurchase more stock, a popular tactic to use excess capital and raise per-share earnings.
Analysts said Ahmanson indicated it would purchase as much as $2 billion of its stock, or about 45 million shares at Tueday’s closing price, during the next few years.
Shareholders of Great Western, which operates 1,150 mortgage lending, retail banking and consumer finance offices nationwide, would own about 60% of the combined company following the transaction.
The acquisition would be the third involving large California thrifts in less than a year. First Nationwide Bank last month completed its $1.2 billion acquisition of Cal Fed Bancorp., first announced last July. Washington Mutual Inc. of Seattle last month completed a $2.05 billion acquisition of Keystone Holdings Inc., parent of Irvine, California-based American Savings Bank.
The Whys and Wherefores
* The state’s remaining big thrifts are more vulnerable to takeover. D5
* Charles R. Rinehart rebuilt Home Savings with untraditional tools. D5
* The hostile route no longer carries the stigma it once did. D5
