Great Western Finds New Suitor Washington Mutual Strikes Deal To Acquire California-Based Thrift For $6.6 Billion

Great Western Financial Corp. agreed Thursday to a $6.64 billion takeover by Washington Mutual Inc., fleeing a hostile bid by H.F. Ahmanson & Co., the nation’s largest savings and loan operator.

Washington Mutual, which emerged as “white knight,” joined Great Western in portraying Ahmanson as a “slash-and-burn” suitor more interested in cutting costs than growing.

Washington Mutual, which runs Seattle-based Washington Mutual Savings Bank, has been on an expansion binge in recent years. Its more than 20 acquisitions include last year’s takeover of American Savings Bank, the second-largest mortgage lender in California. A takeover of Great Western would make it the nation’s largest thrift institution.

Ahmanson and Great Western are based in the Los Angeles suburbs. Ahmanson, the parent of Home Savings of America, announced its offer on Feb. 18.

That day, Washington Mutual Chief Executive Kerry Killinger told Great Western CEO John F. Maher he’d make a competing bid if asked, the executives said.

Killinger and Maher acknowledged the cost savings from a merged Ahmanson-Great Western would be greater than from a Washington Mutual deal. Ahmanson says it can reduce expenses by $400 million a year after a merger; Washington Mutual predicts $340 million in annual savings.

But in a teleconference with reporters, Killinger and Maher portrayed their deal as creating a company that would grow and create jobs, while characterizing Ahmanson as focused only on cost-cutting.

“The shareholders will have to decide if they want to be allied with a growth company or a slash-and-burn liquidation,” Killinger said.

The brawl had the potential to shape up much like the one that resulted in the takeover of Los Angeles-based First Interstate Bank by San Francisco’s Wells Fargo & Co. in early 1996 after a three-month hostile bid.

First Interstate tried to resist through an alliance with First Bank System Inc. of Minneapolis. But in the end, Wall Street pushed First Interstate into the Wells Fargo deal when investors bid up the price of Wells Fargo stock, making its offer far more lucrative to shareholders.

Ahmanson is offering to exchange 1.05 of its shares for every share of Great Western stock. Ahmanson fell 3 percent on the New York Stock Exchange, dropping $1.25 to close at $40.75 a share Thursday. That made its offer worth $42.78-3/4 a share, or around $5.96 billion.

Washington Mutual closed at $53 a share, off 25 cents on the Nasdaq Stock Market. It was offering to exchange nine-tenths of a share of its stock for every Great Western share, making its offer worth $47.70 a share, or about $6.64 billion. Great Western rose 4.2 percent on the NYSE, gaining $1.87-1/2 to close at $46.87-1/2.

Ahmanson spokeswoman Mary Trigg questioned whether Washington Mutual would manage to achieve its predicted cost savings. And she criticized as excessive the $195 million in “breakup” fees that must be paid to Washington Mutual if another institution winds up buying Great Western.

She said Ahmanson remains committed to its takeover bid but suggested it would not consider increasing its offer until Wall Street has a change to study both proposals and vote by bidding stock prices up or down.

In a statement, Ahmanson said Washington Mutual’s estimates of cost savings and higher revenues were “extremely suspect and unrealistic.” It scheduled a meeting Monday with investors in New York to discuss the merits of its offer.

Ahmanson said it also will sue to try to overturn the $195 million in breakup fees and to try to force Great Western to reconsider its proposal.

Ahmanson chief executive Charles Rinehart has guaranteed his employees they would not lose jobs or have their pay reduced as a result of a merger with Great Western. Trigg maintained that the company intends to grow and that the gradual consolidation with Great Western could keep job losses to a minimum over two years.

But the threat of mass layoffs at Great Western clearly helped drive the S&L into Washington Mutual’s arms. Killinger said he would honor lavish severance packages that Great Western adopted as a defense against Ahmanson.

Neither side would say Thursday exactly how many jobs might be eliminated.

All three thrifts want to expand beyond their traditional business of mortgage lending. Great Western has a national consumer finance company that could be expanded, and Ahmanson has been making consumer loans out of its branches and moved strongly into business banking by acquiring 61 First Interstate branches.

A merged Great Western-Washington Mutual would operate in 24 states but would remain mainly focused on its core West Coast markets, Killinger said. It would have $87 billion in total assets, making it the West’s third-largest financial company behind Wells Fargo and BankAmerica Corp.

An Ahmanson-Great Western merger would create an even greater behemoth, with $93 billion in assets.

Graphic: Thrift merger