Wells Fargo Bids For First Interstate -- Hostile $10.8 Billion Offer Would Include Washington Branches

LOS ANGELES - Wells Fargo & Co. made an unsolicited offer to buy First Interstate Bancorp for about $10.8 billion in stock, seeking to form a banking powerhouse covering much of the Western U.S.

The acquisition would be one of the biggest U.S. bank mergers, second only to the planned $11.4 billion combination of Chemical Banking Corp. and Chase Manhattan Corp. announced in August.

In Washington, First Interstate's 137 branches and $5.3 billion in assets would make Wells Fargo the state's fifth-largest bank, with about 8 percent of deposits, said Thatcher Thompson, an analyst at Dain Bosworth. That would put Wells behind Seafirst, Washington Mutual, Key Bank and U.S. Bank, which have 23 percent, 15 percent, 13 percent and 10 percent, respectively, of total deposits.

First Interstate has 2,192 employees in Washington.

Thompson said the proposed acquisition would not likely result in significant branch closings or layoffs except in California, where Wells and First Interstate compete.

Wells is known as an aggressive competitor used to having a dominant or near-dominant share of its markets. A fifth-place position, as it would have in this state, "is something that they have never experienced before," Thompson said.

Analysts and investors have speculated for months that San Francisco-based Wells Fargo would bid for Los Angeles-based First Interstate to beef up its role in California and expand beyond its home state. First Interstate operates in 13 states, while Wells Fargo has branches only in California.

"I think this is a terrific deal," said Harry Keefe, chairman of Keefe Consultants Inc., which owns about 500,000 First Interstate shares. "Everybody wins."

Other investors also applauded Wells Fargo's move, driving its stock up $13.25, to $226.875, in late trading. First Interstate stock was up $34, to $140.

"If I were a First Interstate shareholder, I think I would be for it," Thompson said. With both stocks up today, "I would take that as a vote of confidence by the market that this deal will get done," he said.

Keefe said Wells Fargo stands to profit by cutting costs - the two companies have overlapping branches in California - and selling a wide array of products to a far larger group of customers than it could possibly reach on its own.

U.S. banks, faced with slowing revenue and increased competition from other financial-services firms, have been merging at a record pace this year. More than $50 billion worth of mergers have been announced so far in 1995.

In some cases - such as Chemical and Chase - they've merged with regional competitors with an eye toward cutting costs; in others, they've bought companies that extended their reach to new markets. The Wells Fargo proposal has both elements.

Wells Fargo offered to swap 0.625 Wells Fargo share for each First Interstate share. The offer values First Interstate at about $141.88 a share, based on Wells Fargo's latest price.

Hostile takeover bids are rare in banking, and First Interstate gave a chilly response to the Wells bid.

"I am deeply disappointed that Wells Fargo would take this uninvited action," said William Siart, First Interstate's chairman and chief executive.

Still, Siart said the company's management and board has "explored a wide range" of options to enhance shareholder value, one of which is a merger with Wells Fargo. First Interstate said it will respond to the offer.

"Management is dragging their heels . . . and there's no reason for that," Keefe said.

If First Interstate rejects the Wells offer, it would be the second time in two years that the bank rebuffed a Wells Fargo bid. Analysts said Wells Fargo tried unsuccessfully in February 1994 to convince its Southern California competitor to merge.

"The chances of an actual hostile deal getting done are slim," said Gerald Smith, an investment banker at UBS in New York. But the question, one analyst said, is whether First Interstate's opposition will last.

"It's very hard for them to turn this down," said analyst George Salem of Gerard Klauer Mattison & Co., who suggested in a report in August that Wells Fargo would bid for First Interstate. That report spurred much of the recent speculation.

"There's no other avenue for them to pursue that creates this kind of value," he said.

Compared with many recent bank transactions, Wells Fargo's bid is high at more than 3 times First Interstate's book value. Book value is what's left after liabilities are subtracted from assets.

Yet, some investment bankers said that based on First Interstate's estimated 1996 per-share earnings of $11.29, the offer is a reasonable 12.1 times earnings. In some recent transactions, banks have fetched as much as 15 times earnings.

That leaves Wells with the potential to increase its bid.

First Interstate, with $55.1 billion of assets, is the nation's 14th-biggest bank. Wells Fargo, with $50.1 billion of assets, is the nation's 17th-biggest banking company.

The combined company would be the nation's seventh-biggest in banking, based on the latest ranking by asset size.

San Francisco-based BankAmerica Corp., the biggest bank in the Western U.S., reportedly wanted to buy First Interstate in the mid-1980s and was rejected.

Analysts said a BankAmerica purchase of First Interstate now would face antitrust objections. BankAmerica, with assets of $229.9 billion, would still be California's biggest bank even if the Wells bid for First Interstate succeeds.

Seattle Times business reporter Richard Buck contributed to this report.