Washington Mutual Inc. came riding in Thursday with a white-knight rescue bid of $6.6 billion for Great Western Financial Corp., handily beating H.F. Ahmanson & Co.'s earlier hostile offer.

The move, though much anticipated, was nevertheless a bold stroke by Kerry Killinger, chief executive officer of Seattle-based Washington Mutual, and could spark a protracted bidding war for Chatsworth, Calif.- based Great Western.

"The million-dollar question now is whether or not Ahmanson comes back with another offer of its own," said Lawrence Garshofsky, a Beverly Hills arbitrager. "The most compelling reason for them to come back with something is that their independence may now be at stake," he added.

Ahmanson, whose Feb. 17 hostile bid was valued at $6 billion at the close of Thursday's trading, said it remains "fully committed" to its proposed transaction. At press time, the company refused to say whether it was planning a counteroffer.

Ahmanson said it was "amazed" by Washington Mutual's actions and questioned the company's estimate of $340 million cost savings from the deal. Ahmanson has said it would cut $400 million from Great Western's expense base on a pretax basis by 1999.

If Washington Mutual is ultimately successful, the deal would create an $87.5 billion-asset company, which would be the third-largest financial institution in California and the 11th-largest in the country. It would have 13% of deposits in the highly coveted California market, ranking behind BankAmerica Corp. and Wells Fargo & Co.

The deal, which requires approval from both companies' shareholders and the Office of Thrift Supervision, would be a tax-free exchange of 0.9 shares of Washington Mutual stock for each Great Western share.

Wall Street barely penalized Washington Mutual for the potential cost, shaving just 25 cents off its shares, which closed at $53 Thursday. Ahmanson's stock, by contrast, sank $1.25 to $40.75. Great Western's shares closed up $1.875 at $46.875.

The final outcome will come down to which company can present a more compelling argument for its respective proposal to Wall Street, observers said.

Mr. Killinger and Great Western chief executive John F. Maher acknowledged in a joint conference call Thursday that their deal would not provide the same cost-savings as Ahmanson's, but they insisted it would be attractive for its growth prospects.

"We didn't think that the road to heaven was simply through cost savings and stock buybacks," said Mr. Maher. "The road to success is that you have to build a good company and grow it-that's how you create a really good business."

Washington Mutual has made 22 acquisitions since 1983, growing from just $9 billion of assets in 1992 to $45 billion today. Although some observers said Washington Mutual has grown too much too fast, Mr. Killinger insisted Thursday, "We are not stretching our balance sheet to do this transaction. This will be a financially sound combination."

He added that Washington Mutual has the technology, management, and the operations in place to do such a large acquisition, which he expected could be closed by the third quarter of this year.

The new company would be based in Seattle, but likely would keep the Great Western name in California, he said.

Irvine, Calif.-based American Savings Bank, which Washington Mutual just acquired, would ultimately change its name to Great Western, he said.

Though Mr. Killinger has publicly said in the past that his company would not do a deal unless it added 10% to earnings within the first year, that would not be the case this time.

Washington Mutual expects the deal would add 5% to earnings in 1998 and 11% in 1999. The companies have opted for a pooling-of-interest form of accounting, which means among other things that the deal would not create goodwill.

The Ahmanson proposal, by contrast, would use purchase accounting and put about $3.9 billion of goodwill on Ahmanson's books. Ahmanson estimated that its proposal would add 9% to earnings on a reported basis by 1999.

The key issue that Ahmanson will likely focus on in the expected war of words in the coming days will be cost savings.

"Ahmanson can cut more costs than anyone else, so Great Western is worth more to Ahmanson than anyone else, so therefore Ahmanson can outbid anybody else," said Jonathan Gray, an analyst with Sanford C. Bernstein & Co. "Ahmanson has a meaningful advantage over Wamu for Great Western," he added. "I would expect Ahmanson to counterbid."

Most of the cost savings in an Ahmanson deal would come from overlapping branches in California. Ahmanson has 316 branches in the state; Great Western, 296; and Washington Mutual, 158.

Ahmanson would close about 180 retail branches in the state and another 20 in Florida. Washington Mutual said it would close about 100 branches in California, the only state where it has overlap with Great Western.

Mr. Killinger would not estimate how many layoffs the deal would make necessary, but the combination would lead to a $440 million pretax charge, a bit more than Ahmanson had estimated for its proposal.

Washington Mutual does have one big advantage over Ahmanson, one that could outweigh some of Ahmanson's other arguments: It has a definitive agreement with Great Western, and Ahmanson doesn't.

To make matters worse for Ahmanson, Washington Mutual also secured an agreement from Great Western that if its deal does not go through, the ultimate winner must pay Washington Mutual $200 million. Such a condition would make the deal that much more expensive for Ahmanson.

"Most people take a definitive agreement very seriously," said Karen Edwards, an investment banker with Friedman, Billings, Ramsey & Co. "That's a pretty advanced stage of negotiation.

In an interview, Mr. Killinger and Mr. Maher said the wooing process between the two companies began the day after Ahmanson's Feb. 17 unsolicited offer. On Feb. 18, Washington Mutual's board met and discussed the matter, which led to Mr. Killinger calling Mr. Maher later that day, telling him, in short, that Washington Mutual would be available if Great Western was looking for a white knight.

"When we were banged around with this thing on Monday evening, we began exploring a whole series of alternatives," said Mr. Maher. "Having heard from Kerry at the outset, that evolved and became an absolutely compelling combination."

If the deal goes through, Mr. Killinger, 48, would become the chief executive of the new company. Mr. Maher, 53, would retire, but stay on as a director, they said.

Washington Mutual is using Lehman Brothers Inc. as a financial adviser and Simpson Thacher & Bartlett for legal advice. It has also retained Foster Pepper & Shefelman, a Seattle law firm that has been its longtime legal counsel.

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