Bank United Corp.'s deal with longtime suitor Washington Mutual Inc. was, in the end, the best solution to an acquisition strategy that had become increasingly hampered by the activities of much larger out-of-state competitors in the Texas market.

The Houston-based thrift - the state's largest - said Monday that it had agreed to be acquired by Seattle-based Washington Mutual for about $1.5 billion, ending a run of several years in hot pursuit of its own in-state acquisitions.

The deal was surprisingly cheap in the views of some Wall Street analysts. Washington Mutual is paying 1.67 times Bank United's book value, far lower than the price of some of its previous transactions.

The deal also highlights growing interest among out-of-state buyers in booming metropolitan areas of Texas. BOK Financial Corp., based in Tulsa, Okla., also announced a deal for a Texas company Monday. (See article)

Bank United is one of the few Texas thrifts to survive the savings and loan crisis of a decade ago. Run by Lewis Ranieri, a onetime bond trading star at Salomon Brothers, it has acquired two Texas institutions with about $300 million of combined deposits since 1998 and has been piling on branches and deposits from other institutions in the state as well.

But management of the $18 billion-asset company, which now ranks as the fifth-largest depository institution in the Lone Star state, has become increasingly frustrated in their efforts to expand in the state, losing out in deals to competitors with far more capital.

"When we looked into the future, it was difficult for us to see how much more we could grow," given the limitations of Bank United's balance sheet, president and chief executive officer Barry Burkholder said in a conference call Monday.

For instance, Bank United said it offered more last year "for a major Texas institution" than San Francisco-based Wells Fargo & Co. bid. Still, the Texas company found itself shut out of the deal because the target's management "deemed there to be more liquidity in the Wells Fargo stock," Mr. Burkholder said.

Within the last year, Wells Fargo has bought three Texas banking companies, most recently completing a deal to acquire Prime Bancshares Inc. of Houston for $246 million.

Bank United's choice of merger partner came as no surprise to observers. The $186 billion-asset Washington Mutual has over the few months made it clear that it was ready to get back into the acquisition fray in the high-growth states where it had already put down some roots, including Texas.

Rumors of talks between the two companies have been circulating in recent weeks. In a summer marked by much talk but little action on the bank and thrift merger front, the marriage of Bank United and Washington Mutual was seen as one of the likeliest to actually take place. In its Aug. 17 issue, American Banker reported that a deal between the two was imminent.

In an interview Monday, Washington Mutual president and CEO Kerry Killinger said he had known Bank United's management for years through their participation in various industry organizations.

Mr. Ranieri gained fame in the 1980s as a founding father of the mortgage-backed securities market. Washington Mutual was the fifth-largest originator of residential mortgages at the end of 1999.

Washington Mutual approached Bank United earlier this year, after its completion of some large acquisitions. "I'd known Barry and Lew for years," Mr. Killinger said. "But from our standpoint, we were wrapped up with integration of H.F. Ahmanson." Wamu acquired that California-based thrift in 1998.

Analysts said the deal announced Monday made perfect sense. Bank United and Wamu share a similar consumer banking strategy built around free checking accounts. That strategy has helped both companies poach customers away from bigger banks that charge fees if checking account holders don't meet minimum balance requirements. "Everyone always knew someday Washington Mutual would own Bank United," said Paul Miller, an analyst at Friedman, Billings & Ramsey Co.

The question was whether Washington Mutual's currency was strong enough for a significant deal. Though its stock performance has been improving in recent weeks, some analysts expected the Seattle thrift would have to agree to at least $55 a share to get Bank United to sell.

Based on the closing price of $32.1875 of Washington Mutual stock on Friday, the transaction is valued at about $45 a share. Washington Mutual said it was paying 11.6 times Bank United's trailing 12-month earnings and 10 times the Texas thrift's estimated earnings for 2001.

At these terms, Washington Mutual is getting a bargain, some analysts said. When it acquired H.F. Ahmanson, Washington Mutual paid over 3.7 times institution's book value. For Bank United, in contrast, it is paying 1.67 book value.

"This is a really good price - it's a shocker," said Mr. Miller.

Shares of Bank United fell $1.50 Monday to close at $40.875. Shares of Wamu fell 75 cents to close at $32.0625.

For Wamu, the deal will significantly increase its physical presence in Texas, which so far consists of 48 branches that came with the H.F. Ahmanson purchase and $2.2 billion of deposits, making it the state's 13th-largest institution. Bank United has 155 branches and 3% market share, mostly concentrated on the Houston and Dallas-Fort Worth market.

Washington Mutual also is gaining Bank United's commercial banking operation, a national business that the Seattle thrift has been increasingly interested in expanding.

"As we've articulated, we would like to remix our balance sheet to include more consumer finance and commercial assets, and Bank United brings strong capabilities in commercial assets," Mr. Killinger said.

Bank United has 19 Small Business Administration lending offices in 13 states and is the fourth-largest SBA lender in the nation. It also has 23 middle-market commercial banking offices in 16 states.

The transaction, which used purchase accounting, is expected to close in the fall. Washington Mutual said cost savings should be around $87 million pretax in 2002, mostly from the elimination of duplicative corporate and administrative functions. About 600 to 650 jobs will be cut in Texas, though Wamu said it would offer jobs elsewhere in the company to most of those employees.

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