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Analysts Say Bid Could Cost $100 Million : Fidelity's Parent Wants to Buy Valley Federal

November 20, 1987|DOUGLAS FRANTZ | Times Staff Writer

Fidelity Federal Savings & Loan's parent company said Thursday that it plans to acquire Valley Federal Savings & Loan and create a single institution concentrated in Orange County and the San Fernando Valley.

Valley Federal's board held an emergency, daylong meeting in reaction to the offer from Fidelity's parent, Citadel Holding Corp. At the end of the day, a spokesman said there would be no public response to the offer until today. However, a source at Valley Federal said strong objections to the merger were voiced at the meeting.

Valley Federal, headquartered in Van Nuys, took steps in August to protect itself against a takeover by arranging to place 15% of its stock in the hands of friendly New York investors. Citadel Chairman James A. Taylor said if attempts to negotiate a friendly merger fail, he will try to amass enough stock to force a merger. Analysts estimated that acquiring Valley Federal would cost Citadel more than $100 million.

"A combination of the two institutions will make them better able to compete with the very large savings and loan associations, which have been developing in California over the past decade," Taylor said.

Citadel expressed an interest in acquiring Valley Federal months ago. Glendale-based Citadel now has options to purchase 28% of the outstanding shares in Valley Federal for $18.50 each plus a premium of $2 a share, Taylor said. A third party with authority over 4% of the stock has committed to try to deliver them at a similar price, he said, adding that Citadel is negotiating with other shareholders.

Taylor declined to identify shareholders aligned with Citadel. One possible ally is an investment group headed by Los Angeles businessman James Cotter, which owns 19% of Fidelity's stock and 9.98% of Valley Federal. Cotter could not be reached for comment.

Citadel has assets of $3.8 billion and its principal unit, Fidelity Federal, has 30 offices in Southern California and headquarters in Glendale. Fidelity is concentrated in Orange County and one of its strengths is lending on multifamily residences. Its third-quarter earnings were $8.8 million.

Valley Federal has assets of $3.1 billion and 50 branches in the San Fernando and San Joaquin valleys. The institution is strong in lending for single-family and manufactured homes. Valley Federal had third-quarter earnings of $5 million, its best quarter ever. "If you fold the two companies together, then you have a more conservative loan portfolio because it is better balanced between single-family and multifamily" dwellings, said Gerald S. Haims, banking analyst with Seidler Amdec Securities in Los Angeles.

Haims said a negotiated merger is possible despite Valley Federal's public posture. Haims said one key to a friendly deal would be Citadel offering the top spot in the combined thrifts to Valley Federal President Donald C. Headlund, a step Taylor said he would be willing to discuss.

With assets approaching $7 billion, the new S&L would be the 14th largest in California, with branches concentrated in Southern California's key growth areas.

Analysts said the combined institutions could trim office costs and dump duplicate offices, resulting in a leaner, more profitable operation with a broader reach.

Profitability and size become particularly important as California nears full interstate banking in 1991 and institutions from the East Coast will be able to buy banks and S&Ls here. California institutions are positioning themselves now to either be an attractive acquisition candidate or to survive the increased competition.

Seven stockholders, including Cotter's group, control nearly 50% of the Valley Federal stock. In August, Valley Federal arranged to sell 15% of its stock to Fisher Bros., a New York investment group, as a protective measure.

The deal, which awaits regulatory approval, would sell Fisher Bros. the stock for $15.2 million. The group also would get two seats on the nine-member board and the right to buy another 9.9% of the stock.

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