SAN FRANCISCO — Wells Fargo & Co. said Monday that it agreed to buy First Security Corp. for $2.9 billion in stock, less than two weeks after Zions Bancorp shareholders rejected an earlier merger agreement with First Security.
The acquisition deal is the latest by Wells Fargo Chief Executive Richard M. Kovacevich, who shook hands on an agreement with sometime tennis partner First Security CEO Spencer F. Eccles in San Francisco three days after the Zions agreement collapsed.
San Francisco-based Wells Fargo agreed to pay 0.355 share for each First Security share, valuing Utah's largest bank at $14.11 a share based on Wells Fargo's closing price Friday. While it's 16% above First Security's closing price of $12.19 on Friday, the price is 24% less than First Security's price the day before it agreed to merge with Zions in June.
"It's a chance for Wells to buy them on the cheap," said Daniel Goldfarb, a portfolio manager at David L. Babson & Co., which has about $20 billion in assets.
Last month, shareholders of Zions Bancorp, Utah's second-largest bank, voted against a proposed acquisition of First Security. That deal was originally worth $5.9 billion. But its value fell to about $3.4 billion after First Security warned of a slowdown in mortgage banking revenue, and Zions' investment bankers said the price tag was too high.
Wells dominates the mortgage business, and the deal should enable the combined bank to clear up any of First Security's operational difficulties, said George Bicher, an analyst at Deutsche Banc Alex. Brown.
The acquisition would give Wells Fargo a bank with $23 billion in assets at the end of last year, 333 branches and 9,600 employees. Salt Lake City-based First Security has 138 branches in Utah.
Wells Fargo, which has 24 Utah branches, said it expects to take charges of about $375 million to cover branch closings, job cuts and other costs related to the acquisition. A spokesman said details haven't been firmed up.
The purchase price for First Security will change over time as Wells Fargo's share price fluctuates. As recently as late October 1999, with Wells Fargo trading at $49.06, the transaction would have been valued at $3.59 billion.
It will sell about $1.2 billion of deposits and loans to help it garner regulatory approval for the transaction, which is expected to completed by the end of the year.
Zions shareholders voted against the acquisition of First Security on March 31 because advisors Goldman, Sachs & Co. said Zions might be overpaying for the rival bank. First Security warned last month that first-quarter earnings per share will fall as much as 27% amid rising interest rates.
Zions said in a statement that it was "disappointed" that First Security didn't attempt to negotiate new terms for a merger, though it said it wouldn't make a new offer for the bank.
Eccles said he called Kovacevich on April 1, the day after Zions shareholders voted down the June merger agreement. The following Monday they met in San Francisco and had an informal agreement that evening.
"I wanted to make sure I selected the right merger partner," Eccles said. "Wells is one I had considered over many years. This was a very easy decision."
Wells Fargo shares fell 25 cents to close at $39.50 on the New York Stock Exchange after falling to as low as $37.88 earlier amid concerns that earnings declines will continue to hurt the Utah bank. First Security shares rose $1.19 to close at $13.38 on Nasdaq.