Ahmanson Raises Bid in Great Western War

Raising the stakes in the battle to be the nation’s dominant thrift, H.F. Ahmanson & Co. on Monday sweetened its hostile bid for Great Western Financial Corp., bettering but not overpowering a rival offer made by friendly suitor Washington Mutual Inc. in Seattle.

Although some large shareholders of Great Western and Ahmanson spoke favorably of the revised proposal, investors overall reacted coolly to the expected move. Ahmanson is the parent company of Home Savings of America, the nation’s biggest thrift.

Ahmanson’s new offer was valued at $6.79 billion at Monday’s closing stock price and was $1.688 per share more than Washington Mutual’s offer, which was unveiled earlier this month as part of a friendly merger agreement with Great Western.

But early Monday, when Irwindale-based Ahmanson announced its enhanced offer, Ahmanson’s new bid had an almost $3-per-share edge over Washington Mutual’s.

“I wouldn’t say it’s a knockout blow,” said Joseph K. Morford, a securities analyst at Alex. Brown & Sons in San Francisco.

Yet analysts expressed doubts about whether Washington Mutual would counter Ahmanson’s bid. They said Washington Mutual may well be content to wait for Great Western shareholders to vote, given that less than $2 a share currently separates the two competing bids and that Washington Mutual enjoys an immeasurable amount of goodwill on Wall Street.

“I think it’s going to be close” as to who gets Great Western, said William Rubin, a portfolio manager at Boston-based Fidelity Investments, one of the largest shareholders of all three thrifts. “It’ll be a close call because the differential is not that large.”

The new bid puts pressure on Great Western directors, who are obligated to seek the best deal for their stockholders. If the competing bids are within a few percentage points of each other, analysts say, the directors might be able to justify accepting a lower offer from Washington Mutual, perhaps arguing that its prospects are better and that a friendly deal will be less disruptive to business.

“The rule of thumb is that at 2% to 3% [in price difference], you can hold a deal together, but once you cross 5% it becomes damned near impossible,” an Ahmanson strategist said Monday.

Ahmanson attributed the initial market reaction to risk arbitragers, who buy shares in anticipation of a merger or takeover.

“You’re not going to see the real effect [in the market] until the end of week,” Ahmanson Chief Executive Charles Rinehart said in an interview. Rinehart declined to say whether Ahmanson would raise its offer again if the strength of Monday’s proposal isn’t borne out in the market.

“If you’re in a poker hand, you don’t show all your cards,” he said.

Ahmanson claimed during a morning meeting with Wall Street analysts that its new offer was “clearly superior” to Washington Mutual’s, in part because Ahmanson said it can cut an additional $50 million in annual expenses.

That’s on top of the $400 million in annual savings that it had previously estimated. Washington Mutual has estimated it can cut about $340 million in annual expenses.

Washington Mutual, the country’s second-largest thrift, said that it was not considering a counter-offer. Spokesman Bill Ehrlich reiterated that a merged Washington Mutual and Great Western, which would have $87 billion in assets, would result in a significantly stronger institution than would a Ahmanson-Great Western combination.

For its part, Chatsworth-based Great Western, the third-largest thrift in the nation, issued a brief statement, saying its board would review Ahmanson’s new bid. But Great Western also took the opportunity to urge shareholders to resist Ahmanson’s consent solicitation effort.

As part of its takeover strategy, Ahmanson has sent out solicitations to shareholders asking them to approve a resolution urging Great Western’s board to accept Ahmanson’s proposal unless there is a higher offer. Though the resolution would be nonbinding, it could put additional pressure on Great Western’s board to accept the Ahmanson offer.

Great Western says that effort by Ahmanson would limit the board’s flexibility. The solicitation process is expected to be completed by as soon as the end of the month.

Another Ahmanson move has been to nominate three directors at Great Western’s annual meeting originally set for April 22, but Great Western has indefinitely postponed the meeting.

Ahmanson made its surprise unsolicited bid for longtime rival Great Western on Feb. 17, offering Great Western shareholders 1.05 shares of Ahmanson stock for each Great Western share.

Washington Mutual emerged as a “white knight” soon after, and on March 6 announced a definitive agreement in which Great Western shareholders would receive 0.90 share of Washington Mutual stock for each Great Western share.

Washington Mutual’s offer was several dollars per share higher than Ahmanson’s proposal, although that spread had narrowed somewhat late last week.

Under the new offer, Great Western shareholders would receive $50 per share in Ahmanson stock if Ahmanson’s share are priced between $41.67 and $45.45. If Ahmanson trades at $41.67 or less, Great Western would receive 1.20 shares of Ahmanson stock. If Ahmanson shares rise above $45.45, it would pay 1.1 of its shares for every Great Western share.

On Monday, Ahmanson shares fell 50 cents to $39.75 on the New York Stock Exchange. Washington Mutual shares rose 75 cents to $51.125 on Nasdaq. Great Western, meanwhile, lost 25 cents to $45.25 on the New York Stock Exchange.

Charlotte Chamberlain, an analyst with Jefferies & Co. in Los Angeles, said she viewed Ahmanson’s bid as “very strong.”

“This is a very strategic, savvy move [Rinehart’s] made here,” she said. “Now the ball is in [Washington Mutual Chairman Kerry] Killinger’s court.”

Times staff writer Thomas Mulligan in New York contributed to this story.