With H.F. Ahmanson & Co.'s sweetened bid for Great Western Financial Corp. in hand, investors Tuesday were getting down to the tricky business of determining where their own interests lie.
Based on Tuesday stock prices, Ahmanson's hostile bid and Washington Mutual Inc.'s friendly offer were in a virtual dead heat in terms of value.
Ahmanson's latest bid for Great Western was worth $46.80 a share while Washington Mutual's white-knight agreement to buy the Chatsworth, Calif., thrift-viewed by many as a final offer-was worth $45.40.
The investors, whose votes are being solicited for a shareholder referendum, now face a daunting array of statistics being pitched at lavish luncheons and dinner sessions by the two bidders.
The difficulty is compounded by the heavy overlap in ownership of the thrifts. Up to 75% of Ahmanson's shareholders are said to own Great Western shares, and a similar overlap exists between the Great Western and Washington Mutual shareholder bases, meaning many investors could have mixed feelings.
"At this point, I'd say it's a toss-up," said William Rubin, portfolio manager at Fidelity Investments, which owns 7.5% of Great Western's stock, 7.5% of Washington Mutual, and a smaller stake in H.F. Ahmanson. "The bids are close enough that Great Western shareholders need to focus more on issues like management capabilities, the integration process, and projected earnings growth."
Ahmanson officials asserted that they can achieve earnings per Great Western share of $4.79 in 1998 and $5.90 in 1999, on a cash basis and using its current 1.20 exchange ratio. Ahmanson said Washington Mutual could achieve just $3.97 in 1998 and $4.62 in 1999.
Washington Mutual countered that it could earn $4.56 in 1998 for each Great Western share, and $5.55 in 1999, on a cash basis. Using the Ahmanson's initial exchange ratio of 1.05, Washington Mutual projects Ahmanson would earn only $3.94 in 1998 and $4.50 in 1999.
David Winton, analyst at Keefe, Bruyette & Woods, said he favors Ahmanson because its plans for Great Western appear more straightforward and easier to implement.
The simplicity of the Ahmanson bid also received a nod from Friedman, Billings, Ramsey & Co. analyst Todd Pitsinger, who nevertheless supports Washington Mutual.
Mr. Pitsinger said the situation is virtually identical to the hostile bidding war in 1995-96 for First Interstate Bancorp. In that battle, First Bank System Inc. made a white-knight offer, but Wells Fargo & Co. prevailed by arguing that it "could generate costs savings purely and simply," Mr. Pitsinger said.
Like First Bank, Washington Mutual has a more difficult case to make than Ahmanson. Its projected cost savings come from cutting administrative overhead, integrating computer systems, and closing branches. Ahmanson, Mr. Pitsinger said, will save money the old-fashioned way: by firing people.
Washington Mutual's advocates said the Seattle thrift has more credibility on Wall Street because it has aimed for mergers that would contribute to earnings within a year. Washington Mutual predicts a Great Western deal would add 5% per share to earnings in 1998.
But if a bidding war ensues, one analyst said Washington Mutual "can't go much higher" before diluting its stock.
Ahmanson's critics point out that the Irwindale, Calif., thrift projects hitting earnings estimates in large part through aggressive stock repurchases. But buying Great Western could pull the thrift's tangible capital ratio to 3.85%, one analyst said. In other words, it would no longer be a well-capitalized bank. And that could cause regulators to question the thrift's proposed stock buyback plan.
Regardless of regulatory issues, Mr. Winton said he believes Ahmanson has overestimated the amount of stock it will be able to buy back, which means its earnings projections may be as fanciful as Washington Mutual's.