Security Pacific Sought White Knight

SAN FRANCISCO - Security Pacific Corp. agreed to merge with BankAmerica Corp. because Security decided it faced a bleak future as an independent, according to a merger document filed last week with the Securities and Exchange Commission.

The S-4 proxy statement paints a picture far different from the merger of equals portrayed in public statements. It shows that, as its balance sheet quality eroded, a weakened Security Pacific sought shelter in the arms of its biggest rival.

At the Aug. 11 meeting where the merger was approved, Security Pacific directors noted the company's difficult prospects in a slumping economy.

Key Business Lines Threatened

The board concluded that the Los Angeles company "would face continuing issues with respect to maintaining its capital at current levels and providing for growth," the proxy said. "These issues might force [Security Pacific] to sell strategically important businesses or assets, and might threaten to erode [the company's] competitive position."

By contrast, BankAmerica directors approved the merger only after assuring themselves that the San Francisco company would have the upper hand.

The board noted that BankAmerica shareholders would have 66% of the common stock of the combined company, BankAmerica chief executive Richard M. Rosenberg would keep the top job, and BankAmerica would have six of 10 representatives on the new managing committee.

The proxy reveals that Mr. Rosenberg proposed a possible merger to Security Pacific chairman and chief executive Robert H. Smith in January, soon after The Wall Street Journal reported aborted merger talks between Security Pacific and San Francisco-based Wells Fargo & Co., parent of California's third-largest bank.

The two CEOs were joined by other senior officers, and the structure of a merger agreement was outlined. But Mr. Smith broke off talks in late March while Security Pacific considered its other strategic options.

Security Pacific's chief asked to resume talks in July, and the merger quickly gathered steam.

On financial arrangements, BankAmerica intends to transfer up to $4 billion in problem assets to a special collecting bank. The company hasn't decided whether to operate the unit as a separately capitalized corporate subsidiary or spin it off to shareholders.

If it is spun off, BankAmerica would clean its balance sheet in exchange for the one-time cost of setting the unit up. "It's a good concept if it can be done at reasonable cost," said Stephen Berman, an analyst with County NatWest Securities.

Projected Cost Savings

BankAmerica will take a $250 million charge for merger-related restructuring in 1992, the proxy notes. That will be offset by an estimated $240 million in cost savings in the first year after the merger.

Cost savings will rise to $720 million in the second year and $1.2 billion in year three, BankAmerica projects. About 30% of the savings would come from merging the California retail operations of the two companies, about 45% from other operations, and the remainder from support units.

BankAmerica will divest about $4 billion in deposits in Arizona, California, Nevada, Oregon, and Washington to satisfy regulatory antitrust concerns, the proxy notes. Closing of the merger could be delayed until divestitures are completed.

Mr. Smith and two vice chairmen from Security Pacific, Jerry A. Grundhofer and Nicholas B. Binkley, will have options to leave the company voluntarily and still collect severance benefits equal to three years' salary plus bonuses and other perks.

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