Bank of New York Co.'s decision to launch an unfriendly, but not hostile, bid for Mellon Bank Corp. demonstrates a fundamental shift in how banks approach reluctant targets.
The skirmish contains many of the trappings of a hostile takeover attempt, including an unsolicited bid, lawsuits, and a war of words between the rival parties.
But several essential elements of any hostile takeover bid are absent. For example, Bank of New York is not trying to replace any Mellon directors, nor has it tried to force a meeting of the board. It has not made a direct tender offer to the bank's shareholders, either.
Rather, Bank of New York has been content to publicize its offer- currently valued at $82.075 per share-and let Mellon's shareholders apply pressure to management. Mellon's board unanimously rejected Bank of New York's offer Sunday afternoon.
"They're trying to get the shareholders to do the dirty work for them," said Robert E. Bostrom, a banking lawyer at Winston & Strawn who is not involved in the battle. "They hope the villagers will start an insurrection against the government."
By floating its offer publicly, merger advisers said, Bank of New York is using the most effective element of the hostile takeover without actually declaring war: It has given the shareholders a reason to revolt.
"Bank of New York's strategy is the culmination of learning from past hostile efforts in banking," said Ronald H. Janis, partner at the firm of Pitney, Hardin, Kipp & Szuch. "Banks have learned it's not worthwhile to pursue a traditional hostile takeover because you're not going to be the winner and you'll spend a lot of time and money not being the winner."
Indeed, the history of hostile bids in banking is littered with casualties.
H.F. Ahmanson & Co. was so exhausted by its takeover battle for Great Western Financial Corp. last year, analysts said, that it recently agreed to sell to the winner of Great Western, Washington Mutual Inc.
And Wells Fargo & Co. won the fight for First Interstate Bancorp. in 1996 but so soiled its reputation in the bitter aftermath that it is now considered a likely takeover target.
Bank of New York's 1988 acquisition of Irving Bank Corp. ranks as banking's most successful hostile takeover, but 10 years later people still talk about what a brawl it was.
Hostile takeovers are difficult to complete in any industry, investment bankers and attorneys said, but they are particularly tough in banking. That is because for all banking's consolidation, many companies remain that can make competing offers and spoil a hostile bidder's strategy.
Bank of New York has hired advisers familiar with banking's hostile takeover wars. It has enlisted Merrill Lynch & Co., which most recently represented Great Western, and the law firm of Cleary, Gottlieb, Steen & Hamilton, prominent in international banking law. Cleary, Gottlieb represented First Bank System Inc. in its unsuccessful "white knight" bid for First Interstate.
Bank of New York's battle plan, which began with an analysts-only presentation last week to rally investor support, has clearly put Mellon on the defensive.
On Sunday afternoon Bank of New York said that its bid "has received overwhelming support" from Mellon's institutional shareholders, though it offered no specifics.
Mellon, which is represented by Goldman, Sachs & Co. and the law firm of Cravath, Swaine & Moore, rejected Bank of New York's bid for a second time Sunday. The company said its board was unanimously opposed to such a sale, adding that negotiations which nearly resulted in a deal last December fell apart because of "very different business strategies."
And Mellon's top executives urged Bank of New York in no uncertain terms to back off. "We assume that our response settles this matter once and for all," they wrote in a letter to Bank of New York chairman and chief executive Thomas A. Renyi.
But merger advisers say the rejection is unlikely to quell the pressure now on Mellon.
"Investment bankers are going to call by the hundreds pitching their deals-that's what happened to CoreStates," said Mr. Janis, referring to the Philadelphia banking company that agreed to sell to First Union Corp. after receiving an unsolicited bid from Mellon last fall.
For now, Bank of New York seems content to let Mellon's shareholders continue to apply most of the pressure.
But the bank has by no means been silent, as befits a takeover battle like this one.
People close to Bank of New York say privately that it does not make any sense for Mellon to reject the bid because of different business strategies.
They point to language from a lawsuit filed in federal court last week by Mellon to halt Bank of New York's bid. In that suit Mellon acknowledged discussing with Bank of New York "the possibility of a consensual merger of equals" in November and December.
If Mellon was willing to discuss a merger of equals five months ago, these people say, it is unlikely that the companies' business strategies are terribly different.
