Ahmanson Deal to Buy Coast Federal Is Reported

H.F. Ahmanson & Co. is expected to announce today it will acquire Coast Savings Financial Inc. in a $900-million stock deal that will forge the third-largest financial institution based in California, with $56.6 billion in assets, said people familiar with the deal.

The combination of Ahmanson, parent of Home Savings of America, and Coast, the Los Angeles-based parent of Coast Federal Bank, will create a thrift with $39.2 billion in deposits in California, Texas and Florida.

Some branch closings and layoffs are expected, but the sources said the numbers will probably be small. Coast has 90 California branches and Ahmanson more than 370.

Irwindale-based Ahmanson’s move to buy Coast has been rumored for months and comes on the heels of the thrift’s failed hostile bid to take over Great Western Financial Corp. of Chatsworth earlier this year.

The friendly acquisition of Coast will create the nation’s second-largest thrift, focused on “relationship banking” for small businesses and individuals.

Ahmanson is expected to continue to target dissatisfied clients of larger banks such as Wells Fargo & Co. and BankAmerica Corp.

Fueled by increased competition in the banking and thrift industry, mergers and acquisitions have vastly altered California’s financial landscape in recent years. Several banks and thrifts once headquartered in the Los Angeles area have left in such high profile deals as Wells Fargo & Co.’s acquisition of First Interstate Corp. and Great Western’s purchase by Seattle-based Washington Mutual Inc.

Since its failed bid for Great Western, Ahmanson has been in a race to defend against a takeover bid, and its move to buy Coast is seen as a way to do that, as well as increase growth and profits.

In recent years, many traditional thrifts have become more bank-like and transformed into full service financial supermarkets that provide a broad base of financial products, instead of just home loans.

Once the purchase is complete, Ahmanson will have nearly $35 billion of deposits in California, giving it a 9.1% market share. That would put it behind Wells Fargo & Co.’s 14.4% market share in California and BankAmerica’s 20.3% market share and slightly above Washington Mutual’s 9% market share, according to SNL Securities.

Because Ahmanson operates in many of the same markets as Coast, it is expected to close overlapping branches to cut costs, but the number of those has not yet been determined, sources said. Remaining Coast Savings branches will be converted into Home Savings branches.

Although layoffs are expected among Coast’s 1,500 employees and Ahmanson’s 9,300 workers, they are not expected to be dramatic, sources familiar with the purchase said. There is some overlap between the two companies, especially in Southern California, but Ahmanson now has about 500 job openings it hasn’t filled because of its failed bid for Great Western, people familiar with the company said.

Under the deal, Ahmanson will pay about 1.9 times Coast’s book value on June 30 and a deposit premium of 7.1%.

The deal is complex, involving a tax-free exchange of stock and expected court awards. Coast shareholders will receive $46.17 a share, less than Friday’s closing price of $54, but also will receive certificates that give them the right to collect proceeds from pending litigation.

Ahmanson closed at $57.13 on Friday. Both trade on the New York Stock Exchange.

As part of the purchase, Ahmanson Chairman and Chief Executive Charles R. Rinehart will serve as chief executive and chairman of the combined company. Coast’s current CEO, Ray Martin, will join Ahmanson’s board of directors.

The two CEOs have known each other for several years, and Coast reportedly approached Ahmanson, sources said.

Home Savings has been known for its innovative television advertisements. It recently abandoned a 1950s-style black-and-white television ad campaign for a sentimental approach that features the ups and downs of life, focusing on weddings, new cars, funerals and layoffs.

Coast itself has had some ups and downs. It dabbled in risky high-yield junk bonds in the 1980s and was one in a long list of California thrifts hit hard by the real estate downturn in the early 1990s.

But Coast, with $6.4 billion in deposits, has recovered in recent years, led by its emphasis on adjustable rate home mortgages.

In July, Ahmanson reported better-than-expected second-quarter earnings, with net income rising 68% to $115.7 million or $1.09 a share, from $68.7 million or 51 cents a share for the same period last year.

The deal is still subject to regulatory approval. It is expected to close in the first quarter of 1998.