The Black Hills and Badlands region of South Dakota has emerged as a major tourist destination, and First Interstate BancSystem Inc. in Billings, Mont., wants in on the action.
The $4.9 billion-asset company has agreed to buy First Western Bancorp Inc. in Huron, S.D., for $251 million in cash and stock.
The privately held First Western is headquartered in the eastern part of the state, but its three subsidiaries, the $494 million-asset First Western Bank, the $395 million-asset First Western Bank Sturgis, and First Western Data Inc. (which handles the banks' back-office operations), have all their locations in and around Rapid City.
The Rapid City region "is very strong economically because of its high attraction for tourism," Lyle R. Knight, First Interstate's chief executive, said in an interview Wednesday.
The area is home to Mount Rushmore as well as the massive Crazy Horse Memorial, which has been under construction for 60 years and is still decades from completion. Rushmore has always been a major tourist attraction, and the Crazy Horse Memorial, about 17 miles away, became a top destination after the completion of a visitors center in 2000. Last year roughly 1 million tourists visited the Crazy Horse Memorial, Mr. Knight said.
But the Rapid City market has more going for it than just tourism, he said.
The business environment is healthy because there are no state income taxes, he said, and the region is growing steadily as people continue to move there from more expensive West Coast cities.
Paul Christen, First Western's majority owner and CEO, said Thursday that Rapid City also benefits from being near Ellsworth Air Force Base, home of the B-1 bomber fleet. Moreover, the National Science Foundation is constructing the world's deepest underground physics laboratory, at the Old Homestead Mine in Lead, S.D.
Additionally, the Ziolkowski family, the sculptors of Crazy Horse Memorial, who also head the memorial's fund-raising nonprofit, has been one of First Western's best customers for years, Mr. Christen said.
He said he and his wife are selling the company to First Interstate because they are retiring and want First Western to be in the hands of a mostly family-owned banking company. The Scott family owns 76% of First Interstate's stock, and Tom Scott is the company's chairman.
"We knew they would keep it a true community bank, as their culture almost mirrors ours," Mr. Christen said. "They are also very philanthropic like us, because they know that if they take care of the community, the community will take care of them."
First Interstate disclosed the deal Wednesday in a filing with the Securities and Exchange Commission. It said it would pay about $201 million in cash and issue 5,000 shares of stock collectively worth $50 million to First Western shareholders. To help finance the deal, First Interstate plans to raise $151 million either through senior notes, subordinated debentures, trust-preferred securities, or a through a combination of sources.
The deal is expected to close in the first quarter of 2008. First Interstate plans to operate First Western's three subsidiaries separately for at least a year after the deal closes, but would eventually merge them into First Interstate Bank, which operates 48 branches in Montana and Wyoming, Mr. Knight said.
