Ending a fierce four-month battle, H.F. Ahmanson & Co. on Wednesday abandoned its $7-billion hostile takeover bid for Great Western Financial Corp., all but ensuring that Great Western will now be acquired by Washington Mutual in Seattle.
A merger between Great Western and Washington Mutual, which should now be completed in about a month, is expected to vastly alter the banking landscape in California and create America’s most dominant thrift.
“The last few months have been grueling, exhilarating and at times exhausting, and we’re all happy to see the finish line in sight,” Great Western spokesman Ian Campbell said in an interview. “It’s been an all-consuming experience.”
In snatching Great Western’s vast branch and deposit network in California, Washington Mutual will dwarf rival thrifts, with assets approaching $90 billion, and provide formidable competition to Bank of America and Wells Fargo, two giants of the commercial banking industry.
At the same time, Great Western will lose its decades-old independence, and hundreds of employees at its Chatsworth headquarters and at dozens of branches throughout California will probably be laid off.
Washington Mutual entered California less than a year ago by acquiring the 158 branches of Irvine-based American Savings Bank--a venerable name that also will soon disappear as its branches are merged into the Great Western fold.
Washington Mutual has said it would close about 100 overlapping branches, about half the number that Ahmanson had planned to shut down after a merger. Ahmanson owns Home Savings of America, currently the nation’s largest thrift with nearly $50 billion in assets.
A Great Western-Washington Mutual merger, which still must be approved by shareholders and regulators, is also certain to accelerate consolidation of the California thrift industry and may even lead to a takeover bid for Ahmanson, analysts say.
Ahmanson and Washington Mutual dueled for Great Western because they wanted to increase their loan portfolios and speed their transformation from traditional thrifts making home loans into banking companies providing consumers and businesses with a wide variety of loans and services.
“It’s very profound,” said E. Gareth Plank, a banking analyst at UBS Securities in San Francisco, alluding to the pending merger. “Consumers are going to see Great Western and American Savings being more bank-like. They’re going to see a broader array of products, more loan types, more consumer loans and broader diversification of services such as mutual funds.”
For Irwindale-based Ahmanson, which launched its surprise hostile takeover bid in mid-February with high hopes, the capitulation culminated months of furious legal and public relations moves aimed at winning shareholder support.
The withdrawal came a day after a crucial Delaware court ruling that denied an Ahmanson request to block a shareholder vote on Great Western’s merger agreement with Washington Mutual at the end of next week.
The court’s decision, coupled with waning investor support for Ahmanson, meant Ahmanson had few options but to increase its offer again. But Ahmanson Chief Executive Charles Rinehart said Wednesday that a higher bid would have been too costly to Ahmanson shareholders.
“We still believe that Great Western was an attractive partner but not at the expense of returns to our shareholders,” Rinehart said in a brief statement. He declined to be interviewed.
Ahmanson had previously raised its bid in mid-March, and that offer--to provide 1.2 shares of Ahmanson stock for each Great Western share--was valued this week at almost exactly the same amount as Washington Mutual’s offer to exchange 0.90 share for each Great Western share.
But Wall Street analysts said Ahmanson’s offer would have had to provide a clear premium over Washington Mutual’s bid in order to win, because Washington Mutual had a definitive agreement with Great Western and more respect on Wall Street.
With a shareholder vote scheduled for June 13 and Ahmanson unable to make any headway with Great Western’s directors, time ran out.
Ahmanson lost because Washington Mutual had a more credible management, a better track record, more attractive growth prospects and a stronger stock, said Joseph Morford, an analyst with Alex. Brown & Sons in San Francisco.
For Kerry Killinger, Washington Mutual’s chief executive, the victory marks one of the biggest and boldest moves of the year in the nation’s banking industry.
Until late last year, Washington Mutual had no presence in California and was a regional player in the Pacific Northwest. But with its $1.7-billion acquisition of American Savings, along with almost 20 other smaller acquisitions mainly in the Northwest over the previous five years, it is emerging as a West Coast powerhouse.
“In all his talks, Kerry here has been very clear that he hasn’t finished adding to Washington Mutual,” said Charlotte A. Chamberlain, an analyst at Jefferies & Co. in Los Angeles. “It wouldn’t surprise anyone that after Washington Mutual has integrated American Savings and Great Western, he will look for more.”
Killinger was traveling Wednesday and unavailable for comment.
Great Western’s chief executive, John Maher, expressed both delight and relief Wednesday that Ahmanson had withdrawn its offer and terminated all pending litigation aimed at holding up the merger.
Maher, who had previously agreed to step down after the merger and become a director of Washington Mutual, said he believed from the start that Washington Mutual was a better partner for Great Western.
Even if Ahmanson had taken a friendlier approach, Maher said in his first on-the-record interview since the takeover battle began, “I think we would have come to the same conclusion. The reality is that we and Washington Mutual have been along the path of becoming more bank-like. Our strategies are very much overlays.”
Yet early in the takeover fight, many analysts and investors expected an outcome similar to Wells Fargo’s hostile takeover fight for First Interstate, in which Wells prevailed over First Bank System of Minneapolis.
Like Wells, Ahmanson had the advantage of operating in the same market as Great Western, giving it greater ability to cut costs by consolidating overlapping branches. Ahmanson’s merger plans called for the closure of almost 200 branches--a move designed to help it slash $454 million in annual expenses by late 1998.
Washington Mutual admitted that it could not cut expenses that much, but it also gave much stronger projections for growth in earnings--music to investors’ ears. Ahmanson cast doubt on those projections, but Washington Mutual gradually won the confidence of shareholders.
Shares of all three institutions rose Wednesday. Ahmanson’s stock jumped $1.25 to close at $41.50 on the New York Stock Exchange, an increase that analysts said may reflect its status now as a takeover target.
Washington Mutual rose $1.0625 to $54.8125 on Nasdaq, and Great Western, whose stock was drifting in the low-$30 range in the weeks before Ahmanson initiated the takeover battle, rose $1.375 to close at $48.75.