San Diego-based Great American First Savings Bank on Monday signed a definitive agreement to acquire Home Federal Savings & Loan of Arizona, solidifying an initial agreement announced on Aug. 20.
The proposed $102-million merger, which must be approved by federal and state regulators as well as by shareholders of both thrifts, would create an institution with joint assets of $9.4 billion.
Afoul of U.S. Policy
When the two thrifts announced their merger plan, savings and loan industry analysts indicated that the proposal ran counter to a Federal Home Loan Bank Board policy that has generally prohibited interstate mergers between healthy businesses. The bank board has until now only approved mergers or acquisitions that brought ailing institutions under the management of healthy institutions.
However, the bank board is discussing a policy change that would allow the merger to occur, according to analysts. The board's discussions were prompted by banks' ability to conduct business across state lines, unlike savings and loans.
Allan Bortel, an analyst with Shearson Lehman Bros. in San Francisco, said he initially discounted the merger's chances of being approved. "But I'm thinking otherwise," he said, now that the bank board has started considering approval of mergers involving healthy interstate S&Ls.
Precedent Would be Set
"The key issue is regulatory approval of what would be a heretofore unprecedented direction," said Jonathan Grey, an analyst with Sanford Bernstein in New York. "The biggest question mark is whether the regulators will set a new precedent."
However, a Los Angeles-based savings and loan law attorney said a "unique set of circumstances" surrounding the two thrifts makes the merger likely, even though very few major S&Ls have completed mergers across state lines.
"Great American is a state-chartered institution, so the authority to merge would be included in state S&L law," said Randy Nonberg, an attorney with Stroock & Stroock & Lavan. "And I think Arizona is a state that allows certain (out-of-state) institutions to do business inside the state."
Great American has proposed to pay $36.50 in cash for each share of Home Federal common stock, or a combination of cash and convertible preferred stock with a stated value of $36.50.
"The next step is to file the actual application" with the appropriate state and local agencies, said a Great American spokesman, who added that should the merger not be approved by March 31, "We'd be back at square one."
"They're a good fit," said Bortel. "There's not too much geographical distance, so management can run back and forth pretty fast, and both companies are healthy. It's a decent merger."