Oregon Bank Saw a Sale as Inevitable; Persistent 1st Bank CEO Won the

When John F. Grundhofer, chief executive of First Bank System Inc., first telephoned his counterpart at U.S. Bancorp last November to suggest a deal, he didn't get far.

"I told him he was wasting his time," said Gerry B. Cameron. "But Jack is not easily dismayed."

Indeed, with his customary focused intensity, Mr. Grundhofer persevered- and he came away Thursday with an agreement to buy what is generally regarded as one of the nation's trophy banking franchises. Under the pact, First Bank would pay $8.4 billion for U.S. Bancorp, based in Portland, Ore., or 3.4 times its yearend book value.

There was plenty of competition for the prize, according to Mr. Cameron, who joined Mr. Grundhofer for an interview in New York after discussing details of the deal with Wall Street analysts.

With some poignancy, Mr. Cameron conveyed a sense of what it is like to head a banking company that is "a blip on a lot of other people's radar screens" at a time when bank stock values are high and the number of desirable acquisition targets in the industry is limited.

"Tom Hanley had us on his takeover list forever, and eventually he was going to be right," Mr. Cameron noted, referring to Thomas H. Hanley, the principal banking industry analyst at UBS Securities, New York.

"Being No. 1 in the Northwest, I've felt a little like a girl with a new dress. Everybody has wanted to dance," he said.

"I've been with the company for 41 years, and I didn't particularly want this to happen on my watch; I didn't want to be a part of this," said Mr. Cameron, who is slated to be chairman of the combined company until retiring next year.

"The banking business is changing very rapidly, and huge decisions have had to be made during the past two years," he said. "Our board evaluated all our options. In the end, we found this was the most efficient way for us to operate, to get our costs down," he said.

Mr. Cameron added that U.S. Bancorp vice chairman Robert D. Sznewajs had summarized the case for First Bank, saying, "You know, they are more like us than any of these other banks that have come around."

The big decisions particularly revolved around technology costs and product offerings amid the generally tough competitive environment facing banks, the U.S. Bancorp chief said.

"If you can't grow at a rate equal to or better than others, your stock price will fall and you may find yourself forced to affiliate with someone who is not your first choice," he said.

The likely future value of the stock of the new company was a special concern.

"Price itself wasn't the only thing," Mr. Cameron emphasized. "The bigger question, for me, was what the future company is going to look like. We needed and wanted to make sure that our shareholders would be better off in currency of the new company."

But he also said that in the current environment, "it seemed like the moon, the stars, and the planets were aligned so that we could get a full- price offer with many of the features of a merger of equals."

Mr. Grundhofer termed Mr. Cameron a "tough bargainer" on price but defended the premium being paid.

"The whole industry has moved up," he said. "Relatively speaking, this is not that crazy."

In fact, a number of analysts noted that the purchase price of $59 a share did not represent an unusually big premium over U.S. Bancorp's trading price at Wednesday's close of $48.25.

Perhaps reflecting the pace of bargaining in banking industry consolidation these days, Mr. Grundhofer's left knee was in a cast. He aggravated an old injury while flying in cramped quarters from First Bank's headquarters in Minneapolis to Portland.

Mr. Grundhofer asserted that U.S. Bancorp "was the best fit for us of any bank in the country." The combined company will have a franchise covering 17 contiguous states.

First Bank, in late 1995, staged a white-knight effort to acquire First Interstate Bancorp but lost out to Wells Fargo & Co.

Since then, there have been few opportunities for the midwestern bank to gain a foothold in the West.

The First Bank chief executive said he had been impressed by how far U.S. Bancorp had gone with its own self-improvement program in recent years. "They have come a long way," he said.

Within two years, "this company is going to be in terrific shape to make whatever choices it needs and wants to make, whether in banking or niche financial companies," he said.

But Mr. Grundhofer, who would be president and chief executive officer of the new company, declined to talk specifically about expansion plans.

Retaining U.S. Bancorp's name for the new company was perhaps the easiest and most obvious decision to make, both bank managers said.

"We've had to spend millions of dollars defending our name in some states where we operate," Mr. Grundhofer said. "In Colorado, we haven't been able to use our own name. We've had to use Colorado National Bank.

"We have a great logo, but the name has caused us problems. On the other hand, U.S. Bancorp is a great name that has an association with the whole country," the First Bank chief said. "The franchise value is enhanced by this name."

"It wasn't ever an issue. He walked in the door and said, 'We want your name,'" said Mr. Cameron. Indeed, he said, several other potential buyers had eyed the Oregon bank's nameplate as well.

Mr. Cameron said the unexpected departure last December of Dan Nelson, his presumed successor as U.S. Bancorp's chief executive, was not related to the deal with First Bank, although preliminary discussion were then under way.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER