U.S. Bancorp said Wednesday that it has agreed to buy Western Bancorp of Newport Beach, Calif., for $958 million in stock.
The deal is U.S. Bancorp's second for a bank in Southern California. In February the Minneapolis-based company said it would buy $638 million-asset Bank of Commerce of San Diego for $314 million in stock.
"Western Bancorp is located in demographically attractive markets that benefit from a vibrant economy and strong population growth," said John F. Grundhofer, U.S. Bancorp's chairman, president, and chief executive officer.
The deal, expected to close in the fourth quarter, would bring the $76.1 billion-asset company 31 branches in Los Angeles and Orange counties.
"This puts them smack dab in the middle of a huge economy, and it gives them a strong platform from which to do other bank deals," said R. Jay Tejera, an analyst with Ragen MacKenzie Inc. in Seattle.
U.S. Bancorp already operates 88 branches and more than 100 automated teller machines in California, but those are concentrated in the San Francisco Bay area and regions north.
Analysts said the price, 23 times Western's estimated 1999 earnings, is a fair one, given Western's desirable franchise.
Western, which owns Santa Monica Bank and Southern California Bank, has been busily acquiring local institutions. In the last four years, it has grown from roughly $60 million of assets to its current $2.5 billion.
Western's enlarged franchise became an obvious target for out-of-state banks wishing to enter the attractive Southern California market, analysts said.
"Western was one of the larger franchises available in Southern California," said Joseph K. Morford, an analyst with First Security Van Kasper in San Francisco. "There just aren't many other real opportunities."
In an interview Wednesday, U.S. Bancorp vice chairman Richard A. Zona said the company wants to continue growing in the Golden State, either internally or through acquisitions.
"California is a fabulous market, it's a place we want to be, and we want to be there in a bigger way than we are today," he said.
However, any acquisitions likely will be "relatively modest," he added. "There are definitely opportunities, but they aren't $50 billion in size," Mr. Zona said.
Western's franchise will provide a strong platform to market other services U.S. Bancorp offers in Southern California, he said. The banking company's corporate trust business and investment banking subsidiary, U.S. Bancorp Libra, are both headquartered in Los Angeles.
"We have a lot to build off in Los Angeles," Mr. Zona said.
The Western deal came about in part because several members of U.S. Bancorp's management are former colleagues of executives at the Newport Beach bank, Mr. Zona said.
Matt Wagner, Western's president and chief executive, used to oversee U.S. Bancorp's corporate trust department. Santa Monica Bank president and chief executive David I. Rainer, who is to become president of U.S. Bancorp's Southern California market once the deal closes, worked for Mr. Grundhofer when both were at Wells Fargo & Co.
"We know the management team there very well," Mr. Zona said. Serious merger negotiations started about a month ago, he added.
The deal calls for Western shareholders to receive 1.2915 shares of U.S. Bancorp stock for each Western share. That translates into a price of $44.40 per Western share, based on U.S. Bancorp's closing stock price of $34.375 on Tuesday.
Shares of U.S. Bancorp closed Wednesday's trading at $32.5625, down $1.8125. Western's stock ended the day at $40.3125, up $1.3125.
Mr. Zona said U.S. Bancorp does not expect to close any branches as a result of the transaction and would offer jobs to all Western branch employees.