From Hunter to Game? : Analysts Say Ahmanson Could Itself Become Takeover Target


In abandoning its hard-fought battle to take over Great Western Financial Corp., H.F. Ahmanson & Co. has gone from being a predator to possible prey. But the company has improved its financial results recently and can perform well if it stays independent.

That is how some analysts view Ahmanson’s future in the wake of losing its duel with Washington Mutual Inc. of Seattle, which is expected to complete its friendly merger agreement with Great Western in about a month.

“The countdown clock has started on how long Ahmanson remains an independent company here,” said Charlotte Chamberlain, a banking industry analyst at Jefferies & Co. in Los Angeles.

And who is the most likely buyer? Most say Washington Mutual.


Indeed, analysts and investment bankers say that after Washington Mutual has integrated its acquisition of Chatsworth-based Great Western along with its prior purchase of American Savings Bank of Irvine--a process that could take a good 18 months--the logical next step in Washington Mutual’s bid to take on Bank of America and Wells Fargo would be to buy Ahmanson’s thrift, Home Savings of America.

“Washington Mutual’s next target will be Ahmanson, that makes a lot of sense,” said Frederic Forster, who was president and chief operating officer at Ahmanson until early 1996 and is now a principal at Financial Institutional Partners, an investment bank in Irvine.

At the same time, Forster and other analysts said this defeat is not a catastrophe for Ahmanson or Charles Rinehart, the Irwindale-based company’s chief executive. Analysts applauded Rinehart for knowing when to call it quits, and they credited him and his management team for building Ahmanson’s earnings and stock price, which enabled the company to make a serious bid for its longtime rival.

“I think it’s healthy for shareholders that they didn’t increase their bid beyond a reasonable level,” said Leslie A. Nelkin, an analyst with Furman Selz in New York. Nelkin said he would not be surprised if an out-of-state bank pursued Ahmanson within 12 months.


Among the possible suitors named by analysts are NationsBank Corp. of Charlotte, N.C., Minneapolis-based Norwest Corp. and First Bank System Inc. in Minneapolis--the same three that were seen as potential bidders for Great Western. Only one unidentified out-of-state bank, however, made a serious bid for Great Western, according to Washington Mutual filings.

But Nelkin also indicated that Ahmanson could itself consider other acquisitions. And if it doesn’t do that, he added, Ahmanson could simply chart a course of doing what it’s been doing.

Ahmanson’s top management “has really turned things around in the last few years,” Nelkin said, adding that an improved economy and credit environment in California have helped. “Even without Great Western, they’ll be able to operate quite nicely on their own,” he said.

Forster said he expects Ahmanson to focus on continuing to boost its consumer loan portfolio and small-business loan volume, and reduce its dependence on mortgage lending.

“It could also acquire finance companies or other commercial banks. There are other acquisition opportunities,” he said.

For his part, Rinehart gave only a brief statement Wednesday about Ahmanson’s future.

“We will aggressively pursue our strategy to grow as a full-service bank for consumers and small business, to further improve asset quality, to develop more operating efficiencies and to fully capitalize on our strong market position. We will also continue our capital-management and stock-buyback programs.”

Rinehart declined to be interviewed, and other company executives would not comment about the prospect of Ahmanson being a takeover target or buying other companies.


Mary Trigg, an Ahmanson spokeswoman, said management was obviously disappointed with the outcome, but she described the mood at the company’s headquarters as “extremely upbeat,” and she said Rinehart and the rest of the senior management team plan to stay on.

Still, the battle cost Ahmanson millions of dollars in fees for investment bankers, lawyers, advertising and public relations advice. Trigg said Ahmanson will take a charge in the second quarter to cover those expenses, though a figure has yet to be determined.

Tom Burnett, director of research for Merger Insight, an institutional research service that specializes in following large corporate mergers, said Ahmanson faced a difficult challenge when Great Western lined up its friendly deal with Washington Mutual.

“I give Ahmanson a lot of credit. They were very dogged,” Burnett said. “They did a good job, and they didn’t hurt their shareholders really” by diluting the stock price with an overly generous offer.

Some analysts, however, said Rinehart made one tactical error when he remarked early on in the battle that suggested Great Western employees would face the full brunt of merger-related layoffs.

But others said that ultimately the incident was not a critical factor.




The Ahmanson Challenge

H.F. Ahmanson & Co. faces increasing competition in the thrift industry as well as internal challenges. On Wednesday, the Irwindale-based parent of Home Savings of America withdrew its $7-billion bid for Great Western Financial Corp.

Financial performance has been sluggish ...

Over the last five years, asset and deposit growth has stagnated-- and profit performance has been lackluster.


In billions of dollars

1996: $49.9


In billions of dollars

1996: $34.8

Net Income

In millions of dollars

1996: $145.3

but recent developments have lifted the stock ...

The company’s recent quarterly earnings gains and aggressive share buybacks have boosted the price. Monthly closes and most recent price:

Wednesday close: $41.50

Still, there’s work to do ...

Industry observers cite several actions Ahmanson should take:

* Modernize its computer system.

* Diversify its operations by moving away from home mortgage lending and increasing its number of small-business and consumer loans.

* Face the possibility of becoming a takeover target.

* Adapt to changes in the financial services business.

* Consolidate its branch operations.

Sources: Bloomberg News, company reports

Researched by JENNIFER OLDHAM/Los Angeles Times