Making its unwelcome takeover bid for First Interstate Bancorp even more hostile, Wells Fargo & Co. on Monday raised its offer and took action on several fronts to try to force First Interstate to accept the deal.
The new Wells Fargo bid is valued at $10.6 billion at Monday's closing stock price, $2.45 per share more than the $10.4-billion competing offer from First Interstate's "white knight" suitor, First Bank System Inc. of Minneapolis.
The next move is uncertain. Analysts were split on whether First Bank even needs to match the Wells offer, although money managers who control large blocks of First Interstate stock were clearly rooting for a bidding contest. Both sides are expected to continue meeting with large First Interstate shareholders to tout the merits of their proposals. A shareholder vote is not expected for four to six months.
Saying it is "more determined than ever" to merge with its Los Angeles-based rival, Wells Fargo said Monday that it intends to:
* Go straight to First Interstate stockholders with a direct offer to exchange two-thirds of a share of Wells stock for each of their shares, up from its previous bid of 0.65 Wells share. It will file a registration statement with the Securities and Exchange Commission in connection with the exchange offer.
* Seek shareholder votes to oust First Interstate's board of directors and reject the proposed merger with First Bank. It will file proxy materials with the SEC on both actions.
* Apply with the Federal Reserve Bank of San Francisco to approve its acquisition of First Interstate. This application will enable a Wells-First Interstate merger to close just as quickly as a First Bank-First Interstate merger.
* File suit in Delaware--where First Interstate is incorporated--to overturn the $200-million "breakup" fee that First Bank would collect if its deal falls through.
And to counteract speculation that Wells' largest shareholder, the influential billionaire investor Warren E. Buffett, was cool to the San Francisco bank's hostile approach, Wells Chairman Paul Hazen said Buffett assured him that he is "fully supportive" of Wells' actions.
In a "Dear Bill" letter to First Interstate Chairman William E.B. Siart, Hazen called on First Interstate to allow Wells and First Bank to submit their "best and final" offers and present them side-by-side on a proxy ballot for the vote of shareholders.
First Interstate's only reply Monday was a statement that its board "will meet in due course" to consider Wells' revised offer.
But John F. Grundhofer, First Bank chairman, said in a separate statement that he was "incredulous" at the cost-savings projections that Wells provided analysts Monday in connection with its revised bid. Challenging Wells' ability to run the franchise more efficiently than First Bank, Grundhofer said Wells has "no multistate operating experience and a very limited recent acquisition history."
"This deal will close as planned," he vowed.
Wells Fargo stock dropped $5 to $210.375 a share in trading on the New York Stock Exchange on Monday. First Interstate lost $1.375 to $133.375, and First Bank eased 12.5 cents to $53. At those prices, the value of the Wells offer was $140.25 per share, or a total of $10.6 billion for First Interstate's 75.7 million outstanding shares. The First Bank offer, 2.6 shares for each First Interstate share, comes to $137.80, or $10.4 billion total.
"The market is the best determinant of how professional investors feel," said analyst Stephen Schroll of Piper Jaffray. He said the higher bid may have made Wells Fargo shareholders nervous that they were paying too much. With the drop in Wells' stock, First Bank "doesn't even have to come back with a counteroffer," Schroll said.
Hazen said the stock drop had little significance, since it was on light volume of 75,900 shares traded and bank stocks were down across the board Monday.
He said that if shareholders could be certain that the Wells deal would happen, the stock would bounce back to the high of $230.25 that it hit four weeks ago when Hazen made the unsolicited offer public.
Despite the apparent difference of only $2.45 per share between the two bids, Hazen asserted that the Wells package is worth "well in excess of $20 per share more" than First Bank's.
He based that estimate largely on Wells' ability to save $500 million more per year than First Bank can, because of the great overlap between Wells' and First Interstate's operations in California. Initially, Wells said it could save $800 million a year, while First Bank pegged its annual savings at $500 million. After looking at the material that First Bank and First Interstate issued in connection with their definitive merger agreement, Wells decided that the gap was $200 million greater.
But Grundhofer said that because only a quarter of First Interstate's $2.2-billion expense base is located in California, "it is hard to see how these savings could be achieved. They'd have to close every First Interstate branch in California."
A lawyer active in bank mergers said the battle will get nastier now. He speculated that First Interstate could wage "guerrilla warfare" on Wells by encouraging community groups to oppose its regulatory applications on antitrust and equal-opportunity lending grounds.