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Bid for a Caifornia Banking Giant : Riordan Blasts First Interstate Takeover Offer : Banking: Mayor says he'll back efforts to resist Wells Fargo's overture. Merger seen inflicting job, real estate losses.

October 20, 1995|THOMAS S. MULLIGAN and JESUS SANCHEZ | TIMES STAFF WRITERS

Los Angeles Mayor Richard Riordan on Thursday blasted Wells Fargo & Co.'s hostile takeover bid for First Interstate Bancorp as potentially devastating to the region. He said he would support the hometown bank's efforts to resist.

"There's something very, very bad about a situation where . . . someone offers a lot of money and it somehow destroys the whole context of what's been built up over years," Riordan said of the bid, valued at $10.85 billion in Wells Fargo stock at Thursday's closing price.

A major part of Wells' rationale for the deal is the savings of $700 million a year that the San Francisco-based bank says it could achieve by closing branches, consolidating "back shop" data-processing operations and laying off workers.

Wells executives could not be reached for comment on Riordan's remarks late Thursday, but they have maintained that consolidation is unavoidable if banks are to survive in competition against lower-cost rivals, such as mutual funds and brokerages.

Analysts estimated that job cuts following the merger could range from 7,000 to more than 9,000--or 15% to 20% of the banks' combined 47,300-member work force in California and the 12 other states where First Interstate does business. Wells itself did not provide an estimate of job cuts.

The bulk of the job losses would come in California, where the two banks' operations overlap. And the Los Angeles area "is certainly going to be hit the hardest," Riordan said in a late-afternoon phone interview.

Analysts agreed that as Wells Fargo consolidates the two companies' staffs, it is likely to evacuate First Interstate's landmark headquarters in Downtown Los Angeles, along with workers ranging from clerical workers to high-paid professionals. And Wells would transform First Interstate's branch system to match its own model: smaller offices with more automated teller machines, more computers and fewer people.

Local real estate brokers said the deal might also postpone a long-awaited turnaround of the troubled Downtown Los Angeles real estate market and leave suburban shopping centers littered with more empty bank branches.

Wells Chairman Paul Hazen went public with the bold offer Wednesday morning after William E.B. Siart, First Interstate's chairman and chief executive, had rebuffed his overture the night before.

Hazen's action prompted enthusiastic investors to bid the stocks of both companies to dizzy new highs. First Interstate's stock leaped $34.25 on Wednesday--nearly a third over its price the day before. And the stock hardly backed off at all on Thursday, closing at $139.875, down 37.5 cents, in trading on the New York Stock Exchange.

Wells stock closed at $228.375 on Thursday, down 62.5 cents but still $14.75 above where it was when the First Interstate bid was announced.

Analysts and at least one Wells executive said the reaction amounted to Wall Street's belief that the deal is all but done.

"Realistically, I think they're in a corner," analyst R. Jay Tejera of the Dain Bosworth brokerage in Seattle said of First Interstate. First Interstate may be able to negotiate a higher price by agreeing to a friendly merger, he said, but it is unlikely to find another partner to top Wells' bid--nearly three times First Interstate's book value (the difference between its assets and liabilities).

To make the case that First Interstate should remain independent, it would have to persuade investors that it could achieve that value on its own, said analyst Charlotte Chamberlain of Wedbush Morgan Securities in Los Angeles. While First Interstate has lately made strides in cost cutting and profitability, its stock was trading at a little over twice book value before the bid.

Neither Siart nor other First Interstate officers have commented beyond Siart's initial statement Wednesday that he was "very disappointed" by Wells' action but that the board would consider the offer and respond "when appropriate."

But Riordan said he expects a fight.

The mayor said he spoke with Siart by phone for 20 minutes on Wednesday and "we were both on the same wavelength, agreeing that this would not be good for Los Angeles."

Notwithstanding their responsibility to shareholders, he said, First Interstate's directors "have a perfect right to step back and take the long view and say no to this."

Riordan did not disclose what action he might take, except that--if invited by Siart--he would explain his view of the deal to First Interstate's directors. The First Interstate board is laden with current and retired executives of such pillars of the local business establishment as Atlantic Richfield Co., Lockheed Corp., SCEcorp and Unocal Corp.

There was some irony in Riordan's position, since in his business career he made a fortune investing in leveraged buyouts, which often entail significant layoffs.

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