First Bank System Inc. is by far and away the company's best suitor. But a recently disclosed history of merger talks between the companies shows that First Interstate executives were actually more open to a deal with Wells Fargo & Co. - and other possible merger partners - than previously acknowledged. Indeed, as early as early 1994, when San Francisco-based Wells Fargo initially approached First Interstate with an unsolicited merger proposal, First Interstate's board and management were giving serious consideration to several other combinations, according to documents First Interstate filed last week with the Securities and Exchange Commission. Minneapolis-based First Bank, which stepped forward as First Interstate's white knight earlier this month, rose to the top of First Interstate's list early this year, the documents show. (See related story on the merger battle, page 18.) "We didn't take this consideration (to merge with First Bank System) lightly," said William E.B. Siart, chairman and chief executive of Los Angeles-based First Interstate, in an interview. According to the documents, Wells Fargo made a private, unsolicited offer on Feb. 11, 1994, to buy First Interstate for $90 a share, or approximately 0.69 shares of Wells' stock. First Interstate's board rejected the offer, and instead pursued cost cutting, restructuring, and stock repurchase strategies "aimed at enhancing shareholder value as an independent company," according to the documents. Its stock surged, rising from $63.25 on Jan. 3, 1994, to $100.75 on Sept. 29, 1995. But even while its was pulling off one of the greatest turnarounds in banking history, First Interstate was putting out merger feelers. Indeed, beginning in 1994, Mr. Siart "from time to time engaged in exploratory conversations with his counterparts at various other large regional bank holding companies," including First Bank System, according to the documents. Mr. Siart began zeroing in on a combination with First Bank in the first quarter of this year, when he held what were described as "general discussions" with First Bank chairman John F. Grundhofer. Mr. Siart and Mr. Grundhofer met again in August. Wells Fargo resumed its pressure on First Interstate on Sept. 7, when Mr. Siart met with Wells chairman Paul Hazen at Mr. Hazen's request. At the meeting, Mr. Hazen said a merger of the two banks "was very compelling." Mr. Hazen also reportedly said that the merger "was a strategic imperative to Wells and that no alternative would provide values to Wells' shareholders which were comparable." Mr. Siart offered to schedule a second meeting with Mr. Hazen on Oct. 30. But he also said that First Interstate's board was likely to take six months to evaluate "strategic alternatives." He added that the board could take as few as four months or as many as nine months to reach a decision. Mr. Hazen didn't want to wait that long. On Oct. 17, he telephoned Mr. Siart to tell him about Wells' plans to announce the next day an unsolicited offer to buy First Interstate for 0.625 Wells shares. The call came just after First Interstate's board had met to consider potential mergers with five large regional bank holding companies, including Wells and First Bank. The day Wells made its announcement, First Interstate was contacted by three large regionals, including First Bank, according to the SEC documents. The others were Banc One Corp. and Norwest Corp., according to knowledgeable sources. The Wells and First Interstate camps met to consider Wells' offer on Oct. 26. At this meeting, George Roberts, a partner of First Interstate's biggest shareholder, Kohlberg Kravis Roberts & Co., was present, along with legendary investor Warren Buffett, chairman of Berkshire Hathaway Inc., which is Wells' biggest investor. Mr. Roberts reportedly said an offer of 0.7 Wells share was "required in order to make the transaction equitable." But Mr. Buffett held that a fair exchange would be 0.625 share. On Oct. 30, First Bank System offered 2.5 shares for each First Interstate share. The next day, Mr. Siart told Mr. Hazen that First Interstate "would consider further exploratory discussions" if Wells offered 0.68 share. Mr. Hazen reportedly then excused himself, conferred with Mr. Buffett, and returned to say that Wells' top offer would be 0.65 share. Six days later, on Nov. 5, First Interstate's board approved a sweetened First Bank offer of 2.6 shares. First Interstate subsequently rejected a higher Wells Fargo bid of 0.667 share, arguing that the First Bank deal was better for its shareholders.

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