The war for First Interstate Bancorp has escalated.
On Thursday, nine days after Wells Fargo & Co. launched a $10.1 billion hostile bid, two midwestern banks appear to be seriously considering making an offensive for the Los Angeles bank.
Norwest Corp. is said to have hired Merrill Lynch & Co., and Banc One Corp. is believed to have approached investment bankers, to help evaluate First Interstate's portfolio.
The companies, which seldom use outside merger advisers, would not confirm the news.
Rumors circulated among investment bankers that Wells is ready to hike its bid's exchange ratio from .625 to .7 Wells share for each First Interstate share. This would raise the price from $129.50 per Interstate share to $145 per share.
Wells publicly said its original offer still stands, but added "there may be room for adjustments if First Interstate Bank can justify additional expense cuts," said a Wells Fargo spokeswoman.
The developments arise as Wall Street's reaction to the Wells' bid appears to be shifting from enthusiastic to more critical.
Shares of First Interstate climbed $4.125 to $124.625. Wells shares increased $1, to $208.25, but slipped as low as $204 earlier in the day. The two stocks had moved in opposite directions, indicating some investors believe Wells is no longer the only game in town.
"The Wells Fargo bid, in my opinion, is dead, it is senseless," said one investment banker not involved with the transaction. "The Wells' offer would have paid Interstate 12.5 times next year's earnings, when Interstate would have earned 12 times earnings anyway. Investors are waking up to the reality of the Wells bid."
But another investment banker said the new shareholders who have bought Interstate since the Wells bid would not accept an independence stand from management that would almost certainly drive the bank's shares back to the pre-bid level.
If Interstate resists, Wells will likely start a consent solicitation - and win, he said.
Also Thursday, First Interstate made its first public comment since the hostile bid was announced last week .
Yesterday, a spokeswoman said the bank was making progress reviewing it options, which included a sale to Wells Fargo.
Analysts were divided over what Interstate's best move would be.
George Salem, the analyst with Gerard Klauer Mattison who predicted a Wells Fargo-First Interstate marriage a few months ago, said Wells still made the most sense.
He said neither Norwest nor Banc One could bid $140 or more without dilution while Wells' could always raise its bid. In its analyst conference call last week, Wells' chief financial officer, Rodney Jacobs, said the bank had "wiggle room" in the bid.
But Francis Suozzo of S.G. Warburg said investors probably will be skeptical of Wells Fargo's argument that the deal's depression of reported earnings will not be as important as cash earnings.
Wells' reported earnings would take a significant hit for the next 20 years as it amortizes the price of the deal, which would be accounted for as a purchase.
Banc One, Norwest, and First Bank System, Mr. Suozzo said, could pool the deal, and thus afford to submit a lower bid.
While "Wells' valuation remains modestly above those of other acquirers, it is not so significant as to preempt other bidders from entering the fray," he said. "Finally, other acquirers have the advantage of being 'friendly.'"
Observers say Interstate's aversion can be traced both to the hostile nature of Wells' bid, and also to a concern for employee job losses if Wells, as expected, has to liquidate a huge portion of First Interstate's operation in California.
Assuming all of Wells estimated $800 million in expense savings came in California, that would mean 93% of First Interstate's $860 million in California overhead would be liquidated.
Bankers noted Wells eliminated 5,00 of 26,000 jobs within a year after it acquired Crocker National Corp. 1986. "There is a lot of myth and legend that surrounds Wells, that frankly they have curried over the years, of being the toughest guy on the block when it comes to slicing and dicing costs," said Richard C. Hartnack, vice chairman of Wells' cross-town rival Union Bank Corp. "I think the myth and legend of Wells makes everybody concerned about doing a deal with them."
- Barton Crockett contributed to this story.
