Wells Fargo Launches Bid Offers Record $10.1 Billion For First Interstate Bank

Jolting the world of amiable bank mergers sweeping the country, Wells Fargo & Co. launched a hostile $10.1 billion bid for First Interstate Corp. on Wednesday, hoping to snap up the target before another player does.

The bid was an unusual twist in a wave of bank mergers and reflected the urgency felt by Wells Fargo to marry First Interstate. The two have been flirting for years.

Wells Fargo said it conferred with First Interstate as late as Tuesday night, but First Interstate said it wanted to wait six more months to decide.

“It’s my belief we should be going forward with the merger today,” Paul Hazen, Wells Fargo’s chairman and chief executive, told a news conference in San Francisco.

The hostile bid came against a backdrop of 13 friendly billion-dollar deals announced this year, as banks eagerly pair up to gain a bigger market share and compete with other financial services companies.

If successful, the Wells Fargo offer would be the richest of the lot, setting a record for bank takeovers. The combination would create the nation’s seventh-largest banking business.

In a lucrative and unusually structured offer, Wells Fargo proposed to exchange five-eighths of a share of its common stock for each First Interstate share, representing an exchange price of $133.50 a share based on First Interstate’s closing price Tuesday.

That’s about 2.8 times book value, or the shareholder’s stake in the bank. Most banks have paid about two times book value.

Stockholders of both banks showed their support of the deal by bidding up both companies’ stock.

First Interstate’s shares shot up $34.25, or about 32 percent, to $140.25 in late trading on the New York Stock Exchange. Wells’ shares jumped $15.37-1/2, or 7.2 percent, to $229.

By trading above the offering price, investors were anticipating a better offer.

Hazen declined to say whether the offer would be sweetened or if the bank would be willing to wage a proxy battle to take the issue directly to First Interstate shareholders.

Hazen said the competitive advantages and the economic benefits of the merger are too compelling to wait. The combined bank would be a West Coast powerhouse with $107 billion in assets and 2,000 offices, before branch closings or sales.

Wells Fargo, based in San Francisco and famous for its short-lived Pony Express, is California’s second-largest bank and No. 17 nationwide. Los Angeles-based First Interstate is No. 3 in California and 14th-largest nationwide.

The deal would give Wells Fargo, with $51 billion in assets and operations only in California, an entree into several new markets in the Pacific Northwest and Western states. First Interstate has $55 billion in assets and offices in 13 states.

In Spokane, First Interstate operates nine branches. The bank has five branches in North Idaho.

If consummated, the deal would edge out Chemical Banking Corp.’s proposed $10 billion combination with Chase Manhattan Corp. as the biggest bank merger in history.

Wells Fargo and First Interstate have discussed merging on and off for several years and met Tuesday to discuss Wells’ offer, Hazen said.

He said First Interstate’s board decided to wait six months before deciding on a merger, causing Wells to step up the pressure by making its offer public.

William E.B. Siart, chairman of First Interstate, issued a statement saying, “I am deeply disappointed that Wells Fargo would take this uninvited action.”

Graphic: Major merger