First Interstate Bancorp. disclosed Wednesday it had received a hostile takeover bid from Wells Fargo & Co., a deal estimated at a record $10.1 billion that would create the nation's seventh-largest banking business.
First Interstate is based in Los Angeles and the nation's 14th-largest bank. It is the parent company of First Interstate Bank of Utah.Wells Fargo, based in San Francisco, is No. 17. The combined bank would have assets of about $107 billion.
In the proposal, Wells Fargo would exchange five-eighths of a share of its common stock for each common share of First Interstate, representing an exchange price of $133.50 a share. At Tuesday's closing price of $213.621/2 a share for Wells Fargo and with almost 76.3 million shares of First Interstate outstanding, the deal is worth nearly $10.2 billion.
"The economic benefit of the proposed merger is significant for shareholders of both companies," said Paul Hazen, chairman and chief executive of Wells, in a news release. "Retail and business customers of both companies will benefit because they'll have more convenience and better access to banking locations we plan to add in California and First Interstate's other 12 states."
Hazen said the combined bank could cut $700 million in annual expenses by consolidating operations. The merger would lead to job losses. Hazen said that some positions could be eliminated through attrition. Wells imposed a hiring freeze Wednesday.
The value of the deal is slightly larger than the record $10 billion combination proposed Aug. 28 in which Chemical Banking Corp. would acquire Chase Manhattan Corp. to create the nation's largest bank with assets of nearly $300 billion. That deal is still pending.
Wells Fargo scheduled a briefing on its offer for later in the day.
A wave of bank mergers has swept the United States this year, a move many in the industry consider essential for survival.
Bigger is better, it is argued, when meeting intense competition not only from banks at home and abroad but also from industrial giants such as General Motors Corp. and AT&T Corp., which have huge credit card businesses, and from brokerage houses that offer bank-like checking and other services.
"I am deeply disappointed that Wells Fargo would take this uninvited action," William E.B. Siart, chairman of First Interstate, said in a statement disclosing the offer.
But he also said a merger had been under consideration.
"First Interstate is committed to protect and serve the best interests of our shareholders. Our board of directors and management have been exploring a wide range of strategic alternatives, of which Wells Fargo is one," he said. "The board, assisted by its financial and legal advisors, intends to continue this evaluation and review process on an accelerated basis. As a part of that process, the board will consider Wells Fargo's proposal and respond when appropriate."
First Interstate stock closed Tuesday at $106 a share. The deal would value its stock at about $133.50 a share.