In the nearly three weeks since it stunned the banking world with a hostile offer for First Interstate Bancorp, the San Francisco bank had been playing a waiting game as its Los Angeles-based target aggressively courted other partners. Now that First Interstate has found a White Knight in First Bank System Inc., analysts expect Wells to launch a three-pronged attack, including a proxy solicitation, a legal challenge to the provisions of the Minneapolis company's offer, and a publicity campaign. "There is a very good chance this saga is not over," said David Berry, director of research at Keefe, Bruyette & Woods Inc. "First Interstate shareholders will almost certainly have two proxies to choose from." If Wells launches a proxy solicitation to put its bid before First Interstate investors, it may also move to invalidate the "lockup" provision in the First Bank System deal, observers said. Under the provision, First Interstate - and by extension, its ultimate acquirer - would pay First Bank System $100 million worth of options to purchase 20% of First Interstate if the bank is acquired by another company. Lockup provisions have been challenged in court, though no suit has been filed by a bank. There is also a $100 million "breakup" fee, so Wells potentially would have to add $200 million to the price of a deal. Richard Zona, First Bank System's chief financial officer, told analysts he believed the lockup was reasonable and could withstand a legal test. Wells said it had offered to raise the exchange offer in its bid from 0.625 of its shares for each Interstate share to 0.65. Based on Monday's closing prices, Wells' bid would pay First Interstate shareholders $131.64 per share, while the First Bank System bid would pay $129.675 per share. First Interstate closed at $126.875 Monday, down 87.5 cents, while Wells Fargo closed down $1.625 at $210.625. First Bank shares were down $1 to $49.875. Given the slim difference between the two bids, the crucial question is how much higher Wells might raise its offer. One investment banker said Warren Buffett, a major Wells shareholder, had conveyed concerns to management about a potential bidding war. To avoid such a costly exercise, analysts said, Wells probably will wage a publicity campaign questioning the earnings and cost-cutting estimates First Bank System used to justify its bid. The Minneapolis bank estimated First Interstate would earn $982 million in 1996, while Wells Fargo estimated earnings in the range of $850 million, Mr. Berry said. Were Wells to use the rosier numbers, its bid would look that much better, he said. Amortization of goodwill would cut reported earnings accretion in 1997 to zero, said Campbell Chaney, a bank analyst with Rodman & Renshaw. First Bank System said reported earnings accretion for its bid in 1997 would be 18%. Wells argues cash earnings are more important than reported earnings, but investors are still more comfortable using reported numbers, Mr. Chaney said. Mr. Chaney and Mr. Berry also defended First Bank System's estimate it would save $500 million, or 22% of First interstate's expenses, a high figure for an out-of-market merger. Some investment bankers scoffed at the figure. "I doubt you can achieve all that from overhead reduction, given that First Interstate has already reduced its operating centers from 17 to one," one investment banker said. Were Wells to fail in its quest to acquire First Interstate, observers said, the bank might quickly focus its attentions on U.S. Bancorp, with which it reportedly has had discussions over the years. That bank is reportedly a target of Norwest Corp. On the news of the agreement between First Interstate and First Bank System, shares of U.S. Bancorp rose $1.25 to $32.25 in heavy trading, while Norwest rose $1.125 to $32.

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