Under the $34 billion merger deal announced Monday, Norwest Corp. would acquire not only the Wells Fargo & Co. name and operations but also a famous shareholder, Warren E. Buffett.
Mr. Buffett, who holds a 7.87% stake in Wells, is expected to wind up with a little less than 4% of the merged company. And market experts said the legendary investor is likely to stick with the company.
His continued support could prove vital as the two operations are blended.
Indeed, when asked whether the billionaire investor was consulted before the deal was announced Monday, Wells Fargo chairman Paul Hazen said, "When a person is your No. 1 shareholder, you talk to him."
Mr. Buffett's Omaha investment vehicle, Berkshire Hathaway, first bought Wells Fargo stock in 1990, when it traded in the $50-$60 range. His continued support of Wells helped push the shares higher when many feared the company was saddled with exposure to bad real estate loans, and he helped it retain value when its acquisition of First Interstate Bancorp ran into trouble.
Just how big a stake he keeps has been a subject of speculation on Wall Street. In February, documents filed at the Securities and Exchange Commission indicated that Mr. Buffett had increased his stake in December. Documents filed afterward showed that the stakes were actually smaller.
Although Mr. Buffett would not comment on the filings, he was quick to say at the recent Berkshire Hathaway annual meeting that "Wells has done good by us."
Many market observers agreed that the deal, despite concerns about cultures clashing, is likely to gain the active support of the so-called Oracle of Omaha.
"He would like this deal," said Jonathan Lee, an avid Buffett watcher and president of Hollister Asset Management, an investment firm in California. "You are dealing with two banks that are very profitable which have weathered a pretty tough economic cycle in the past seven years.
"These banks are not trying to turn themselves into investment banks nor are they trying to become huge global conglomerates," he noted. "They are homespun banks, and there is an appeal for Buffett who likes businesses that are mundane and predictable."
The price of the deal, $34 billion, also is not through the roof, said Mr. Lee.
Although Mr. Buffett has never had a stake in Norwest before, Mr. Lee noted that the Minneapolis company is one of the largest originators of mortgages in the country. "Buffett has been a fan of the mortgage business for many years," said Mr. Lee. "You can tell by his stakes in Freddie Mac and Fannie Mae."
While Mr. Buffett may have given the deal his blessing, investors are not.
On Tuesday, shares of Wells Fargo and Norwest slid as arbitragers and investors who had expected Wells to merge with U.S. Bancorp dumped their shares.
Wells shares fell $12.75, to $353, and Norwest's stock slid 87.5 cents, to $35.9375.
Analysts also have been skeptical of the deal. Analyst Raphael Soifer of Brown Brothers, Harriman & Co. noted that the 9% premium that existed Friday when the merger was struck "has completely been erased" by Tuesday's market. Mr. Soifer downgraded Wells from "trading buy" to neutral.
Bank analyst Joseph Morford at Van Kasper agreed, adding that some investors are disappointed that Wells Fargo decided to merge with Norwest as opposed to U.S. Bancorp.
"Norwest was a surprise partner, and the companies have different operating strategies," said Mr. Morford. Obviously, "there are some concerns in the near terms over the cultural and integrations issues between the two companies."
Norwest chairman and CEO Richard M. Kovacevich said he was not surprised that Norwest's stock price dropped on news of its merger.
"It's going to take time for people to understand the story," Mr. Kovacevich said.