BankAmerica, in an escalation of its struggle to resist First Interstate's $3.4-billion acquisition offer, has mailed to securities analysts a detailed internal study that raises "very serious doubts" about the adequacy of First Interstate's bid and its prospects for regulatory approval.
In the 18-page document, BankAmerica claims that the First Interstate offer falls $1.1 billion to $2 billion short of the equity capital needed to make the merger work and win approval by federal banking authorities.
The document further states that First Interstate could not raise the additional capital without seriously undermining its own stock value and destroying any potential benefit to shareholders of the combined companies.
Strengthen Capital Position
A First Interstate spokesman responded Tuesday by saying that the combination would strengthen BankAmerica's capital position and push its capital levels well above those required by federal regulators.
The First Interstate official repeated the bank's claims that BankAmerica shareholders would benefit immediately by the restoration of their common stock dividend, which was eliminated in January after BankAmerica reported a $337-million loss for 1985. The bank has lost $600 million so far this year.
The BankAmerica study also says that First Interstate's estimates of cost savings and synergies from the combination "appear to be highly exaggerated." First Interstate has said that an outside consulting firm, which conducted a study, reported that the merger could create cost savings ranging from $475 million to $695 million a year within a few years after the deal is closed.
Two banking analysts said Tuesday that they received the BankAmerica document in response to questions about the proposed merger. They both said they found the BankAmerica analysis "persuasive," agreeing that First Interstate would likely have to strengthen its offer with cash or a new common stock issue if it is to be successful in its pursuit of BankAmerica.
BankAmerica has not formally rejected the First Interstate proposal, which was delivered last month, but has given clear signals that it does not want to merge with anyone. It plans to sell assets and streamline operations in an effort to regain profitability and remain independent.
Earlier this month, BankAmerica asked First Interstate to withdraw its proposal, but the aggressive Los Angeles banking firm refused. The offer is still pending, but BankAmerica has set no timetable for either accepting or rejecting it.
The BankAmerica board meets next Monday in a regularly scheduled session, at which it may vote to reject the First Interstate bid outright. The document mailed to analysts may be part of its justification for such a decisive rejection. But BankAmerica has given no sign that it plans any action on the bid next week.