Making a bid for dominance in the Northwest, U.S. Bancorp announced said Monday it will merge with West One Bancorp in a stock transaction valued at $1.6 billion.
The deal will marry two multistate holding companies under the U.S. Bancorp name with $30 billion in total assets, $4 billion in market capitalization, 14,500 employees, and 670 branches in six states before likely consolidations.
The merger announcement is the biggest in banking since the $3.7 billion Fleet-Shawmut deal in February, and the first such transaction involving investment bankers from UBS Securities who recently defected from Salomon Brothers. (See article on the back page.)
Portland, Ore.-based U.S. Bancorp is already the biggest banking company based in the Pacific Northwest, while Boise-based West One is No. 1 in Idaho.
Each superregional has a presence in the other's home state as well as Washington. U.S. Bancorp will contribute additional branches in Northern California and Nevada, West One in Utah.
Though the merger is expected to cut U.S. Bancorp's earnings by 2% next year, management expects the deal to be accretive in later years and to position U.S. Bancorp for a bright future as a dominant regional player.
Preparing for that future, the banks announced a succession plan in which, Gerry B. Cameron, 56, chairman and chief executive of $21 billion- asset U.S. Bancorp since last year, will head the combined corporation until he retires in 1998.
He is expected to be followed in that post by West One's current chief executive, Dan Nelson, 57. In the interim, Mr. Nelson would serve as U.S. Bancorp's president and chief operating officer, and as a director.
Rounding out a top-management triumvirate as vice chairman will be Robert D. Sznewajs, currently executive vice president under Mr. Cameron at U.S. Bancorp.
The deal "clearly solidifies U.S. Bancorp's position as the premier Northwest financial institution," Mr. Cameron said Monday.
Under terms of the deal, which is expected to close by yearend pending shareholder and regulatory approvals, U.S. Bancorp will exchange 1.47 shares of its common stock for each share of West One common.
The price represents a 46% premium over West One's closing price last Friday of $32.125, and a relatively healthy 2.01 times West One's book value.
The combined bank would have $21 billion of deposits and about the same in net loans.
In addition to being the leader in deposits in Oregon and Idaho, with market shares of 29.4% and 31.2%, respectively, the post-merger U.S. Bancorp would be third in Washington at 11.1%, fifth in Nevada at 5.2%, and seventh in Utah at 3.6%.
U.S. Bancorp has built a 2.7% share in Northern California in recent years through a 59-branch network.
In a decentralized management structure with a president in each state, West One officials are slated to run the Idaho and Utah banks, while U.S. Bancorp officials would run the others.
The merged banks would have the largest automated teller machine network in their part of the country, with 1,500 machines.
Both institutions rate highly in credit quality. But when the deal is concluded, U.S. Bancorp expects to take a $9 million after-tax charge against earnings to increase its loan-loss reserve to stay consistent with current policies.
Another $60 million after-tax charge is expected to cover costs of the merger, including severance packages.
Mr. Cameron said cost reduction is a key reason for the deal, with $84 million of expense reductions expected to be realized by the end of 1996. A big chunk of the savings is to come from branch closings, especially in the Portland area, where U.S. Bancorp has 75 offices and West One 24.
Savings are also expected from consolidations of back offices and data processing. A total of 1,100 full-time jobs are expected to be eliminated, delivering just over half of the $84 million annual target.
Mr. Sznewajs, who has a strong operations background and previously headed Bank of America's credit card unit in Arizona, will oversee the consolidation program.
These cuts would come at the end of an aggressive cost-cutting effort that U.S. Bancorp began last year to cut the work force by a quarter as well as $100 million of annual expenses.
Mr. Cameron said he is also anticipating revenue growth from selling U.S. Bancorp services through West One branches. One such service not currently available through West One is home banking, he said.
Mr. Cameron noted that U.S. Bancorp executives have been interested in West One for 15 years. He said the deal was completed now because U.S. Bancorp's stock price has appreciated by a fifth this year and the cost reduction program is largely complete.
Mr. Nelson said that West One had always been amenable to a deal - as long as the price was right.
"I told Gerry (Cameron) that when he felt he could afford us, give us a call," he said.
Like other banks merging in overlapping territories, the companies may have to take action to assuage concerns under the antitrust laws that they may become too powerful and eliminate competition in some markets.
U.S. Bancorp and West One have retained the New York law firms of Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz, respectively, as antitrust advisers. Mr. Cameron said the attorneys have indicated the issue is manageable. He declined to be more specific.
A Wachtell Lipton attorney said branch divestitures are likely, following a pattern that the Department of Justice and Federal Reserve Board have established in other mergers with "in-market" implications.
Another legal issue that could arise is insider trading. West One's stock soared $4.625 last Friday on rumors of the U.S. Bancorp deal. It was approved by West One directors Friday evening and publicly announced early Monday.
West One was up another $1.375 Monday, to $33.50, while U.S. Bancorp fell $2.125, to $24.625.
A West One spokeswoman acknowledged there may have been a leak and said, "I'm sure that the SEC will investigate."
A Securities and Exchange Commission spokesman said the agency, as a matter of policy, neither confirms nor denies investigations.
Analysts were split on the wisdom of the deal. Joseph K. Morford 3d, a bank stock analyst in New York with Alex. Brown & Sons Inc., said he thought the price was fair and would lead to a more valuable U.S. Bancorp.
But James Marks, an analyst in San Francisco with John Hancock Institutional Equity Services, said he thought that West One could fetch a higher price. He also said the dilution to U.S. Bancorp's earnings next year could make it a more likely takeover candidate.
U.S. Bancorp has long been seen as an attractive target for an out-of- region acquirer.
