Wells Fargo Wins Hostile Bid For First Interstate $11.6 Billion Deal Creates Eighth-Largest U.S. Bank
Wells Fargo & Co., a bank with roots in the Wild West, on Wednesday won a corporate shoot-out for control of First Interstate Bancorp with a hostile $11.6 billion bid that is the richest ever in banking history.
As a result of the combination, 350 bank offices will close in California, eliminating thousands of jobs. But the combined bank, the eighth largest in the United States, is promising $45 billion in loans and investments in low-income areas in the next 10 years, estimating that will create 715,000 new jobs.
There had been estimates of 7,000 lost jobs in the merger, but the banks said that was too high.
“Jobs are certainly an issue, I won’t sugarcoat it,” said Paul Hazen, the chairman of Wells Fargo.
Hazen and First Interstate Chairman William E.B. Siart said it is too early to say which branches would close or what regions might be hardest hit. Without elaborating on the exact number of jobs to be cut, Hazen said the layoffs would be spread equally between both banks.
He said those displaced would be given preferential treatment in filling vacancies created by hiring freezes imposed by both banks last year.
Some of those empty positions are in the Northwest. First Interstate has 354 branches in Oregon, Washington, Idaho, Montana and Alaska. There are nine in Spokane, one in Davenport and five in North Idaho.
Wells Fargo has no Northwest branches.
Gary Garrett, First Interstate senior vice president in Spokane, said the freeze did not apply to customer-service positions occupied by the vast majority of local employees.
First Interstate’s Northwest region has $12.78 billion in assets and $10.1 billion in deposits.
Hazen said a few branches may be closed as part of a normal assessment of branch operations, but others may be opened in new niches such as supermarkets.
The deal shot down a rival agreement by First Bank System Inc. of Minneapolis, to acquire Los Angeles-based First Interstate. Because of less overlap in sales territory, that merger would have led to fewer branch closings. But the offer also was $1.6 billion below the Wells Fargo bid and First Bank declined to up the ante.
Because First Interstate broke its Nov. 5 agreement to merge, it will pay First Bank a $125 million fee for the termination of that agreement and an additional $75 million when it closes its deal with Wells Fargo.
Siart, who sought a “white knight” bidder to rescue First Interstate from Wells Fargo’s unwanted advances, is stepping down when the merger is completed. His “golden parachute” departure payment is worth more than $4 million, according to Siart.
In the takeover, Wells Fargo, based in San Francisco, will pay First Interstate shareholders two-thirds of a share of its stock for each First Interstate share, a deal valued at $152.33 a share at the time the agreement was announced. First Bank’s offer came to $130.65 a share.
The $11.6 billion price tag dwarfs the $10 billion Chemical Banking Corp. is paying for Chase Manhattan Corp. to create the nation’s largest bank with assets of almost $315 billion.
A Wells Fargo-First Interstate merger would create a bank with combined assets of $108.4 billion.
The merger is the latest in a trend that has seen banks across the United States consolidating operations. Banks have been rushing to combine on the theory that greater size and efficiency will make it easier to compete against rivals both within and outside the industry.
For example, brokerages and insurers have launched many bank-style services. Companies such as General Motors Corp. and AT&T Corp. have credit card businesses, and many manufacturers and retailers offer consumer loans.
Shares of all three companies rose on the New York Stock Exchange after the deal was announced, with First Interstate up $2.25 to close at $149.25, Wells Fargo gaining $1 to $229.50 and First Bank up $1.50 at $51.75.
The combined bank will be called Wells Fargo & Co., and Hazen will be chairman.
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