NEWS ANALYSIS: Washington Mutual Calif. Deal May Clear Pooling Hurdle

Serious acquisition talks between Washington Mutual Inc. and American Savings are hinging on a complicated accounting issue that nearly killed the deal months ago but may have been resolved.

Seattle-based Washington Mutual, which has assets of $22.3 billion, wants to use pooling-of-interests accounting to buy Irvine, Calif.-based American Savings, according to well-placed sources.

But the conditions under which a pooling can be executed are very strict. And it isn't clear to many outsiders that Washington Mutual's acquisition of $19.8 billion-asset American could meet those criteria. The California thrift is controlled by Robert M. Bass' Keystone Inc. investment partnership. Poolings are normally prohibited when they involve subsidiaries of holding companies.

Sources close to the talks, who asked not to be named, said that early in the negotiations it appeared that a pooling wouldn't be allowed and that, as a result, Washington Mutual would back out.

But sources added that the parties had since talked with the Securities and Exchange Commission and are confident they would get preapproval for the transaction by using loopholes under which American would be viewed as an independent company in which Mr. Bass, Keystone, and his partners are investors.

The parties to the deal "have confidence it can be done," said a source involved in the talks, who asked not to be named. His comments were echoed by others close to the negotiations.

If the accounting issue is resolved, it would eliminate one big barrier to the merger, which would create a $42 billion-asset thrift. The result would be a West Coast powerhouse, merging Washington Mutual's strong presence in the Northwest, with American's strong share in California.

The accounting technique is important because poolings-of-interests can be accomplished without incurring earnings-charges related to goodwill. Goodwill is the amount by which a purchase price exceeds a company's book value. American is said to be likely to sell for at least 1.5 times book, or $1.8 billion.

A deal at that price would incur $600 million of goodwill that would be charged against Washington Mutual's earnings for several years.

But sources said there are other contentious issues to be resolved, including the price Washington Mutual would have to pay, and whether or not Keystone officials would be represented on Washington Mutual's board after the transaction.

Sources said that three investment banks are involved in the negotiations: Merrill Lynch, which is representing the Federal Deposit Insurance Corp., CS First Boston representing Washington Mutual, and Lehman Brothers, which is representing Keystone. The FDIC owns warrants for 30% of American Savings, which was sold to Keystone for $500 million after it failed in 1988.

One stock analyst, Joseph K. Morford, with Alex. Brown & Sons Inc., in San Francisco, said he thought a merger of Washington Mutual and American Savings could be attractive, although it would depend upon the terms.

Daniel Kaplan and Snigdha Prakash contributed to this article.

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