First Interstate Seeks Alternative First Bank Merger Preferred To Wells Fargo Hostile Takeover

First Interstate Bancorp, fleeing an unsolicited takeover bid from Wells Fargo & Co., agreed Monday to a friendly acquisition by First Bank System Inc. of Minneapolis for a record $10.3 billion in stock.

First Interstate said the hostile nature of Wells’ bid and the large number of layoffs that would occur in a merger with Wells contributed to its decision to accept First Bank System’s offer.

Wells Fargo indicated that it’s still interested in First Interstate. Paul Hazan, Wells chairman, said First Bank’s offer “does not serve the best interests of First Interstate’s shareholders.”

In a news release, Hazan said Wells offered to sweeten its original $10.1 billion bid by $450 million, raising Wells’ total offer to $10.55 billion.

“It is unfortunate that First Interstate’s shareholders were not given the opportunity to voice their opinion,” about the higher offer, said Hazan.

A higher bid wouldn’t change First Interstate’s mind, said William Siart, First Interstates’s chairman. He said merging with First Bank Systems is a better option because the combination would be friendly, the merged bank would be in more markets than a Wells-First Interstate combination and California would be hit with fewer layoffs, said Siart.

“If someone provides you with a letter in a hostile way, that doesn’t make you feel friendly out of the shoot,” said Siart in a teleconference.

The merger would lead to 6,000 job cuts from a combined staff of 41,000, bank officials said. A Wells Fargo-First Interstate merger could have resulted in up to 10,000 layoffs, analysts estimated.

If completed, the new deal would exceed the record $10 billion merger agreement between Chase Manhattan Corp. and Chemical Banking Corp. that would create the nation’s biggest banking concern.

A First Interstate-First Bank System combination would create the nation’s ninth-largest banking company, with $92.4 billion in assets and 1,514 branches in 21 states, the banks said.

The deal is a return to the trend of friendly mergers in the banking industry. A wave of mergers has been spawned by a belief that only the biggest, most efficient banks can survive in increasingly intense competition among one another, as well as with industrial giants like AT&T Corp. and General Motors Corp., which now offer credit cards, and brokerage firms, which offer banklike services.

The combination will result in estimated annual savings of $500 million, or 22 percent of First Interstate’s expenses, said John Grundhofer, the chairman of First Bank System.

That’s below the $700 million that Wells said it could save from combining overlapping branches with its cross-California rival First Interstate. Lower expenses are the driving factor behind many bank mergers.

Analysts said that even though there’s little overlap between First Bank Systems and First Interstate, the two could cut costs by converting banks in separate states to branches, thus eliminating the need to pay for separate boards of directors and corporate staffs.

Another plus is that antitrust issues would not be a concern in a First Interstate-First Bank merger. Wells would have had to sell some branches in some California markets to avoid antitrust violations.

Since the Wells Fargo bid, First Interstate had been actively seeking a different partner, and had opened its books to Banc One of Ohio and Norwest Corp.