Earlier this month an unsolicited letter expressing interest in acquiring Great Lakes Bancorp, fueled predictions that acquirers will turn to more aggressive tactics in the new age of interstate banking.

The unidentified company withdrew the letter -- known in investment banking parlance as a "bear hug" -- which could have complicated an announced merger between Great Lakes and TCF Financial.

But while TCF was spared a rough-and-tumble battle for Great Lakes, other banks and thrifts may not be so lucky, some observers say.

"As companies begin to feel a greater strategic imperative to make acquisitions, they are going to get somewhat more aggressive," said Michael Martin, a managing director with CS First Boston. "As certain managements become more frustrated with their inability to get transactions done ... then you may see more frequent use of bear hugs and more aggressive tactics than you have in the past."

Robert O. Weinke, a partner with the Chicago law firm Ross & Hardies, cited the increased presence of institutional money in bank holding companies as one reason to expect more proxy fights and takeover battles.

As institutional investors increase their roles in banks, they will look to takeovers as a way to pump up their investments, he said. At the same time, he said, "The opportunities for friendly takeovers are less and less frequent. There are fewer targets out there that are willing to sell, so the really aggressive national bank holding companies are going to have to look to hostile takeovers as a means to expand their franchises."

To date, hostile takeovers are relatively rare in the banking industry, and there are reasons to think they may remain rare.

There are too many regulatory hurdles to overcome, said H. Rodgin Cohen, a lawyer with Sullivan & Cromwell. If a bank cannot perform due diligence on the acquisition target, regulators will never approve a proposed merger, he said.

Also, hostile takeovers are prolonged ordeals that distract companies from their primary goals: servicing them: franchises, said Robert Baer, senior managing director at Bear Stems & Co., who predicted few if any hostile takeovers.

In one notable exception, Bank of New York Co.. won a protracted and bitter struggle and acquired Irving Bank Corp. in 1988.

The following year, a hostile bid by NCNB to acquire Citizens and Southern Corp. failed. Later, though, NCNB would consume its target in a friendly takeover after C&S merged with Sovran Corp. The resulting company is NationsBank Corp.

Two years ago Star Banc Corp. warded off Fifth Third Bancorp.'s unwanted overtures, in a struggle that still lingers between the two companies.

But Mr. Cohen said such activity will remain the exception to the rule. Instead, he said, the industry will see an increase in "teddy bear" and "bear hugs"-- similar to the letter to Great Lakes.

Bear hugs usually entail a formal letter sent to the target expressing interest. A hostile takeover bid sometimes involves the acquisition of shares in the market and requires a filing with the Securities and Exchange Commission.

Much of the increased bear hug activity will stem from the Delaware Supreme Court's decision last year in the battle over Paramount Communications, he said.

The court ruled Paramount had to pursue the best value reasonably for its shareholders.

This "raises serious doubts as to the effectiveness of certain defensive techniques ... which .might be utilized by a bank holdmg company undertaking a strategic merger for the purpose of avoiding unsolicited hostile takeovers," said Mr. Wienke of Ross & Hardies.

More specifically, he said, the use of "lock-ups" where the acquiring company has options to buy a certain percentage of the acquiree's shares, may be questionable after the court decision, he said.

Before the Paramount case, the typical lock-up percentage was 20%. But uncertainty over the Delaware ruling likely caused TCF and Great Lakes to lower the lock-up threshold, one investment banker surmised.

TCF's option to buy 10% of Great Lakes stock as part of the merger agreement may have been a deterrent to the third party that withdrew its "bear hug" letter.

Notably, the TCF deal also includes a $7.5 million termination fee, a feature that is highly unusual in deals that already include lock-ups, this investment banker said.

Because of these two features, the investment banker continued, it is unlikely Great Lakes shopped itself around. As a result, it drew the unsolicited letter after the merger plan was announced.

Bear hugs are often never made public, though often the interested acquirer may make the letters public to put pressure on the target company's boards.

This was the case last year when Keycorp made public a letmr of intent it sent to Evergreen Bancorp., which the Glens Falls, N.Y.-based thrift eventually rejected.

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