Washington Mutual and American Savings Bank announced their long- awaited merger Monday, creating one of the nation's three largest thrift companies.
Washington Mutual Inc. of Seattle, the fifth-largest U.S. thrift, said it agreed to pay $1.2 billion of stock for Irvine, Calif.- based American Savings, the sixth-largest.
The price equals 1.54 times American's tangible book value and a 3.3% premium on its deposits.
Washington Mutual would nearly double in assets, to $42 billion. It would add 158 American branches and 61 loan offices in California to Washington Mutual's 317 locations in Washington, Oregon, Idaho, Utah, and Montana.
Washington Mutual also would assume $445 million of debt and preferred stock of the various parent companies of privately held American Savings.
American's chief executive officer, Mario Antoci, plans to retire at the conclusion of the deal, though he would continue to consult with Washington Mutual on issues related to the Community Reinvestment Act.
The merger deal, which was six months in negotiation and the subject of persistent speculation, closes a chapter in the savings-and-loan saga from the 1980s. American's previous holding company, Financial Corporation of America, was at one time the largest U.S. thrift, and in 1988 the biggest insolvent one.
The government sold that company to an investment partnership led by Robert M. Bass for $550 million, with the deposit insurance fund retaining warrants for a 30% stake.
Washington Mutual's deal would give the federal government 14 million shares of Washington Mutual, representing 12% of the company, which at closing prices Monday was worth $490 million. The government will likely try to sell its stake shortly after the merger's conclusion, which is expected by yearend pending approval by regulators and by two-thirds of Washington Mutual's shareholders.
Analysts hailed the acquisition, and Washington Mutual's share price rose Monday by $4.875 to $35.
"This is a super deal for Washington Mutual," said Montgomery Securities analyst Joseph Jolson in San Francisco.
Significantly, the deal's economics are predicated on improving Washington Mutual's balance sheet and American's revenues, rather than on cost savings.
"This is not a slash-and-burn, cost-save merger," said Washington Mutual chairman Kerry K. Killinger. "This is about growing a strong and vibrant company.
Mr. Killinger, 47, who will retain his position, said in an interview that one of the most attractive parts of American is an adjustable-rate mortgage portfolio that will reduce the company's exposure to fluctuations in interest rates.
Washington Mutual also hopes to sell its home equity and investment products through American's branches.
Mr. Killinger added that Washington Mutual will be able to cut expenses by $50 million, by consolidating back office systems and administrative and headquarters offices. No branch closings are planned.
Washington Mutual predicted the merger will boost earnings this year by 3.3%, and in 1998 by 19.6%.
The deal calls for Washington Mutual to issue 40 million shares to purchase American's parent company - Keystone Holdings Inc., which is controlled by Robert Bass and his associates.
Mr. Bass' group will end up with 26 million Washington Mutual shares, or 22% of the total. Mr. Bass himself will be the biggest single investor, with 8% of the company.
Current Washington Mutual shareholders will have 77 million shares, or 66%.
Even though Washington Mutual and American Savings had been talking for months, the outcome was uncertain because of the unusual complexity of a transaction involving a savvy group of private investors and the Federal Deposit Insurance Corp.
On top of that, Washington Mutual sought the favorable accounting treatment known as pooling-of-interests.
Sources knowledgeable about the negotiations said Mr. Bass and his associates were impressed with the quality of Washington Mutual's management, and the parties came quickly to the conclusion that a merger was in their best interest.
Daniel Kaplan contributed to this story.
