Washington Mutual Buys Rival Purchase Of H.F. Ahmanson Creates Nation’s Seventh-Largest Banking Firm

In its second huge acquisition in less than a year, the nation’s largest thrift, Washington Mutual, said Tuesday it agreed to buy rival H.F. Ahmanson & Co. for $9.9 billion in stock.

The friendly purchase would create the nation’s seventh-largest banking company serving nearly 6 million households in the West and Florida. It would have nearly $150 billion in assets.

The new company will focus on consumer banking services such as mortgage, home equity and small business loans, said Kerry Killinger, president and chief executive of Washington Mutual.

“Clearly, we have found … a huge desire to have an alternative to huge commercial banks,” Killinger said. “We feel that putting our companies together we can do that.”

It will be the nation’s leading adjustable-rate mortgage lender and the West Coast’s No. 1 mortgage lender overall.

“It’s a transaction that people often talked about as making sense,” said analyst Michael Hodes of Goldman Sachs in New York.

The thrifts’ stock prices soared on the news. Ahmanson’s stock shot up $12.37-1/2, or nearly 19 percent, to $77.87-1/2 in trading on the New York Stock Exchange. Washington Mutual’s gained $1.18-3/4, or nearly 2 percent, at $72.93-3/4 on the Nasdaq Stock Market.

The combined thrift will be called Washington Mutual Inc. and will be headed by Killinger. Ahmanson chairman and chief executive Charles R. Rinehart plans to leave when the merger is completed.

Washington Mutual last year intervened as a white knight bidder in Ahmanson’s hostile attempt to acquire Great Western Savings, a merger that would have made Ahmanson’s Home Savings of America the nation’s largest thrift. Washington Mutual, based in Seattle, completed the $8 billion acquisition last July.

Rinehart said he initiated negotiations with Washington Mutual after realizing that Ahmanson could not grow sufficiently on its own to remain competitive with larger banks.

The acquisition ends a 22-deal merger binge for Washington Mutual, Killinger said. The company will focus on combining the Great Western and Ahmanson systems, and then concentrate on building market share.

“We now have a very strong and vibrant franchise … that puts us in a very strong position to compete, so the importance of acquisitions will be far less than in the past,” he said.

The new company will have a large presence in Washington state, Oregon, Texas and Florida, but California will be the greatest area of overlap with 700 branches before any are combined.

Washington Mutual also said it would consolidate 160 to 170 branches after the merger.

The merger is expected to result in the elimination of 3,000 to 3,500 jobs, or about 10 percent of the more than 31,000 people now employed by the two companies. Many of those cuts will be absorbed by attrition. Layoffs are most likely to hit administrative staff, Killinger said.

The merger plan requires approval by both shareholders and antitrust regulators.

“I’m not expecting any problems or any need for divestitures. It certainly will be reviewed, but if any (are required), it will be very modest,” said Joseph Morford, an analyst with BT Alex. Brown Inc. in New York.

The deal should generate annual savings of $330 million by the year 2000, Washington Mutual said. It plans to charge $254 million against earnings for expenses related to the deal.

Under terms of the buyout, Ahmanson shareholders will get 1.12 shares of Washington Mutual stock for each Ahmanson share.

That represents a price of $80.36 per share for Ahmanson stock based on Monday’s closing price for Washington Mutual. That is a 33 percent premium over Ahmanson’s closing price of $65.50 a share on Monday on the New York Stock Exchange.