H.F. Ahmanson & Co. may have made itself an attractive takeover candidate by agreeing to buy Coast Savings Financial Inc., a move that would vault it back into third place among California financial institutions.
Ahmanson said Monday that it has agreed to pay $901 million for Coast. It was the thrift company's first expansion move since it lost a long and bitter takeover battle for Great Western Financial Corp. earlier this year.
Wall Street observers said the deal looks like an excellent one for Ahmanson, which would pay only 1.9 times book value-and less than Coast's market value per share. At the same time, Ahmanson showed it would remain an aggressive acquirer of California thrifts as the industry there rapidly consolidates.
But the move immediately rekindled speculation about Ahmanson's future. And ironically Washington Mutual Inc., the winner in the Great Western fight, is regarded as the most likely partner in a bigger deal involving Ahmanson, market observers say.
"We believe that Ahmanson's value is optimized as a takeover candidate for Washington Mutual," said Jonathan Gray, an analyst at Sanford C. Bernstein & Co., who characterized Ahmanson's acquisition of Coast as "excellent."
The deal "certainly enhances the Ahmanson story," said Friedman, Billings, Ramsey & Co. thrift analyst Todd Pitsinger, "although they were pretty dominant to begin with."
Investment bankers and bank executives have recently stressed that merger-minded commercial banks won't pay big prices to enter new markets unless they are getting at least the third-largest player.
Ahmanson would qualify. Upon acquiring Coast, it would have the largest market share in populous California behind BankAmerica Corp. and Wells Fargo & Co.
Nevertheless, Charles R. Rinehart, chairman and chief executive officer at Irwindale, Calif.-based Ahmanson, insisted Monday in a telephone interview that his company plans to remain independent.
He said the acquisition of Los Angeles-based Coast, which has remained a traditional mortgage lender, would enable Ahmanson to cross-sell its consumer finance and money management businesses. "The accounts they bring are the kinds of customers who have the closest relationships" with bankers at thrifts, he said.
The acquisition of Coast, which has $9.1 billion of assets, would be accounted for as a purchase, meaning Ahmanson could continue buying back stock from shareholders. Upon closing, scheduled for the first quarter of 1998, Ahmanson would have $56.6 billion of assets.
At $46.17 per share, Ahmanson is paying a discount to market price for Coast, which last Friday closed at $54.25. But the acquisition is structured so that Coast shareholders can receive 100% of after-tax proceeds from the thrift's pending goodwill case against the government. Analysts said the damages could be worth an additional $12 to $18 per share.
As for the future, Mr. Rinehart said Ahmanson would consider additional acquisitions of thrifts, banks, or consumer finance companies, but "did not need acquisitions to grow."
Many analysts who study the West Coast fully expect Ahmanson and Washington Mutual to fight it out for the few remaining big thrift companies left in California.
"You now have two large, acquisitive companies in California," said Keefe, Bruyette & Woods Inc. analyst Thomas Theurkauf. "And I don't think Washington Mutual is satiated yet."
Ahmanson expects the in-market acquisition to start adding to earnings immediately after closing by wringing out 50% of Coast's operating costs.
Mr. Rinehart estimated that 55 of Coast's 90 branches could be closed. But he added that job losses would be "minimal" because Ahmanson has many positions available.
Analysts said the deal is attractive to investors because it gives them the chance to double-dip in a potential windfall from litigation. Coast, Golden State Bancorp, Ahmanson, and other thrifts have all sued the government seeking billions in damages for accounting rule changes enacted in 1989 to deal with the thrift industry's financial crisis.
Coast and Ahmanson have discussed merging for years, said Mr. Rinehart. But six weeks ago he said Coast chairman and executive Ray Martin approached him about finally doing a deal.
Coast was close to selling to Washington Mutual earlier this year before the Seattle thrift company began its pursuit of Great Western.
Ahmanson was advised by the law firm of Sullivan & Cromwell and the investment bank Merrill Lynch & Co., which curiously enough advised Great Western in its defense against Ahmanson earlier this year. Coast was advised by the law firm of Cleary, Gottlieb, Steen & Hamilton and by Goldman, Sachs & Co.
