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Return of the Gunslingers

'Deja Vu All Over Again' for Strategists in Great Western Fight


Veterans of some of the most bruising bank battles in recent history are back again to settle some old scores in Great Western Financial Corp.'s effort to escape a hostile takeover bid by H.F. Ahmanson & Co.

Many of the very same investment bankers, lawyers and advisors who masterminded such past takeovers as Wells Fargo & Co.'s three-month, $13-billion battle for First Interstate Bancorp. are facing off again, often in exactly the same roles.

And if some of the takeover strategies sound similar--the lawsuits, the positioning, the "white knight" purchasers--that's because they are.

"It's deja vu all over again," said Campbell K. Cheney, a longtime banking analyst in San Francisco. "What you have here is a mirror image of the Wells Fargo-First Interstate deal. Even the white knight showing up is the same--except this time it's Washington Mutual."

Many of the bankers working closely on the deal are based in Los Angeles--a sign that the clout of L.A.'s bankers is increasing as the number of companies going public here or merging reach record levels. Many of the investment banks in Southern California are currently hiring because of a boom in business.

"Los Angeles is a major financial center and people sometimes don't realize it," said Philip R. Erlanger, 40, a Los Angeles investment banker with Lehman Bros., the firm advising Washington Mutual in its friendly bid.

Great Western announced Thursday that it agreed to be acquired by Seattle-based thrift Washington Mutual Inc. in a stock swap valued at nearly $6.6 billion. Ahmanson, the nation's largest thrift, rocked the financial world on Feb. 17 when it made a hostile bid for Great Western. A flurry of lawsuits and other takeover assaults and defense maneuvers have been pursued in a battle being waged by investment bankers in Los Angeles and New York.

One favorite maneuver is to publicly poke holes in the opposition's numbers. On Thursday, the merger-related cost savings claims and hefty breakup fee announced by Great Western and Washington Mutual drew fire from the other side.

Advisors on the Ahmanson team, speaking on a don't-quote-me-by-name basis, note that Washington Mutual's entire cost base in California--salaries, office rent, phones, electricity and so on--will be $226 million next year, after the company finishes squeezing a promised $50 million in savings out of its American Savings operation. They estimate Great Western's California costs at no more than $700 million, for a combined $926 million in California costs between the two companies.

And yet, Washington Mutual projects 1999 cost savings of $340 million--or 37% of total costs--as part of the Great Western merger. Wells Fargo, the original scorched-earth cost-cutter, only managed 40% savings in the First Interstate deal, and those two banks had far more overlap than Washington Mutual and Great Western do, Ahmanson's advisors say.

The so-called breakup fee of up to $195 million that Washington Mutual will earn if Great Western decides to jilt it for Ahmanson or another bidder was also a target. Ahmanson advisors termed the fee "outrageous," noting that Wells negotiated a $200-million breakup penalty for itself in the First Interstate deal. But $200 million was less than 2% of the value of that deal, while $195 million for Washington Mutual would be over 3% of the value of its offer.

Advisors take their public potshots in hopes of winning Wall Street investors to their side. Without Wall Street's support, most deals won't get done.

Analyst Thomas O'Donnell partly agreed with Ahmanson's criticism, saying that the Washington Mutual cost-savings projections "may be too aggressive." He added, however, that Washington Mutual has "a tremendous track record" of acquiring companies, folding them into its own operations and quickly generating higher revenue.

"The market has always underestimated Washington Mutual's ability to hit its revenue targets," O'Donnell said.

Great Western's advisors include former First Interstate advisor Goldman Sachs & Co., which is known industrywide for its expertise in defensive tactics in hostile takeovers. Great Western also hired Merrill Lynch & Co. and lawyers Skadden Arps, Slate, Meagher & Flom, a New York law firm that helped pioneer some of the most controversial takeover strategies in the 1980s and a former First Interstate advisor.

At Goldman Sachs, Los Angeles investment bankers Joseph H. Wender, Andrew M. Gordon and John A. Mahoney, 38, are helping to mastermind the Great Western strategy. Both Wender, 52, and Gordon, 33, helped defend First Interstate.

"Most of us know each other from other deals," said Lehman's Erlanger. It's no surprise that Lehman is involved in advising a "white knight" for Great Western, said Erlanger. The CEO of Great Western, John Maher, is a former Wall Street investment banker who once worked at Lehman.

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