Taking another step to fight nonbank competition, Norwest Corp. has agreed to acquire the Foothill Group Inc. for $441 million in stock.
That price is 12 times Foothill's estimated 1995 earnings, and the deal brings Minneapolis-based Norwest one of the nation's largest publicly owned commercial finance companies. Foothill has $745 million of receivables.
In recent years, Foothill has been a major player in distressed real estate and an investor in restructured company debt.
"This is their first play into commercial finance," said Lawrence R. Vitale, a banking analyst at Bear Stearns & Co., referring to Norwest, "and to the extent this can offer a higher return and a better growth business than traditional banking, this is a good move and consistent with what they've tried to do on the consumer finance side."
"It's one of those areas where nonbank players have been taking business away from the banks, and Norwest is fighting back," he added.
The transaction calls for an exchange of one share of Foothill common stock for 0.920 share of Norwest common. Each share of Foothill preferred will be exchanged for 6.1333272 shares of Norwest common.
The purchase price is based on a 15-day average market value of $26.883 per Norwest share.
Norwest said the acquisition is expected to close in the fourth quarter and should add immediately to its earnings per share.
Foothill and its wholly owned subsidiary, Foothill Capital, will operate under their own names as subsidiaries of the bank company and will continue to be headquartered in Los Angeles, Norwest said.
"I think it's a good deal for Norwest, the pricing is reasonable, and it should be accretive to earnings," said Joseph Duwan, a banking analyst at Keefe, Bruyette & Woods Inc.
Mr. Duwan said Foothill's main gain is being able to use Norwest's AA rating versus Foothill's BBB.
Foothill's average loan size is around $2 million, and that fits nicely with Norwest's small business and middle-market orientation. Norwest already does some commercial finance through Norwest Business Credit, which has $507 million of assets and operates in eight states.
Foothill's asset-based lending division, which focuses on companies with borrowing needs of $5 to $50 million, will also complement Norwest's credit operation.
Jim Campbell, a Norwest executive vice president, said the purchase of Foothill will "further diversify our nationwide specialized lending businesses, which account for approximately 14% of net income."
Commercial finance firms lend to companies that may not meet commercial banks' credit standards. These substandard credits typically pledge assets such as accounts receivable, inventory, machinery, and equipment as collateral for loans.
The Foothill Group had 1994 net income of $31.1 million for a 21.2% return on equity and a 4.8% return on assets.
In addition to Los Angeles, Foothill has offices in Boston, Chicago, and Richmond, Va.
In December, $62 billion asset-Norwest made a similar acquisition in consumer finance by purchasing ITT Corp.'s Island Finance.