H.F. Ahmanson & Co.'s failure to win Great Western Financial Corp. may have put to rest the idea of hostile takeovers of large financial institutions.
Ahmanson, the nation's largest thrift company, did more than lose a bidding war. It spent more than $15 million on the effort, excluding the costs of senior management time and energy directed away from day-to-day operations.
Ahmanson also stands to lose its No. 3 position in California market share to Washington Mutual Inc. of Seattle, Great Western's successful white knight.
"For others considering a hostile acquisition, the value of the prize has to be so great that it's worth enduring this kind of battle, with all its distractions and costs," said Michael Shepherd, a lawyer with Brobeck, Phleger & Harrison in San Francisco.
"You also have to realize that in the end you could not only lose, but could face an even more formidable competitor in your market," he added.
The odds have historically gone against hostile takeovers in the financial services industry. The erosion of cordiality and collegiality in banking, spurred by deregulation and new forms of competition, led to a handful of unfriendly approaches in the past decade. But only two attempts were successful-at great cost to the victors.
Bank of New York Co. needed 13 months to close its 1988 deal with Irving Bank Corp., during which time Irving lost a significant number of corporate customers.
Wells Fargo & Co.'s stellar reputation has been tarnished in recent months by its clumsy integration of First Interstate Bancorp Many analysts have lowered their recommendations for Wells' stock as a result.
"It depends on the particular facts of the case," said Paul Hazen, chairman and chief executive officer of Wells. "But on the surface there can be some animosity as to how each party respectively handles the situation, and that can spill over."
The track record is likely to discourage acquisition-minded bank executives from launching hostile takeovers, observers said.
"Hostile deals have been rare, and they will continue to be rare," said H. Rodgin Cohen of the New York law firm of Sullivan & Cromwell, who advised Ahmanson in the battle for Great Western. "I don't think that the Ahmanson situation and the fact that it was unsuccessful will change that."
Outside of banking the story is different. In 1996, for example, 73 hostile takeover attempts were made, according to Securities Data Co. These bids were launched by such name-brand companies as Hilton Hotels Corp. and International Business Machines Corp.
Banking's still relatively high degree of regulation and the considerable time it takes to complete acquisitions in the industry are seen as the main reasons for the paucity of hostile takeovers.
Conditions have to be absolutely perfect for a successful hostile banking takeover, industry veterans said. And in Ahmanson's case, they were close.
"There were weaknesses in Great Western's defenses, but they were not weak enough," said Mr. Cohen. "The second problem was that there was a bidder out there that could pay more or that could convince the market it could pay more."
Advisers said Ahmanson's "vicious" approach from the outset made it highly unlikely that Great Western would negotiate with Ahmanson.
"If they had come in friendly, in the worst case John (F. Maher, Great Western's chief executive officer) would've shopped it around and come back with a higher offer," said a Washington Mutual adviser who requested anonymity. "But at least they would've been able to play on the same field."
Despite the risks, investment bankers are not likely to steer major banking companies away from hostile deals.
According to public filings, Washington Mutual paid its investment banker, Lehman Brothers, $20 million for its services. Great Western paid $17 million each to financial advisers Goldman Sachs & Co. and Merril Lynch & Co.
Ahmanson paid Credit Suisse First Boston $3 million and Montgomery Securities $1 million. Ahmanson's advisers would have received another $6 million each if it had won the deal.