Washington Mutual Inc. has laid out the details of its merger agreement with Great Western Financial Corp., putting the onus on H.F Ahmanson & Co. to demonstrate to shareholders that its hostile bid is better.
Observers said Ahmanson probably will make a counteroffer in the next few days if it exhausts other attempts to move the market in its favor.
"The ball is in Ahmanson's court," said Campbell Chaney, an analyst with Sandler O'Neill Partners. The spread between the value of the two bids "is wide enough to force a sweetened bid from Ahmanson," he said.
But first, observers said, Ahmanson is likely to pull out all the stops in its criticism of Washington Mutual's filing Thursday with the Securities and Exchange Commission.
In the filing, the Seattle thrift stuck to its claims that it could realize $208 million in cost savings in 1998 and $340 million in 1999, while generating $173 million in pretax revenue next year and $334 million in 1999. What's more, the filing projected 1999 net interest income at $246 million, $77 million higher than earlier estimates.
Washington Mutual also said cost savings would be realized by merging back-office operations, eliminating administrative overhead, and closing a total of 200 branches in California, Washington, and other states. The thrift said it would get $50 million of savings in 1999 from branch closures.
Based on Thursday's closing prices, Washington Mutual's offer is now worth $46.46 for each Great Western share, while Ahmanson's is worth $42.39 per share.
That 4-point difference has remained basically unchanged since Washington Mutual emerged as a white knight March 6, despite Ahmanson's verbal attacks earlier this week on Washington Mutual's offer.
People familiar with Ahmanson's strategy said the Irwindale, Calif.- based company does not believe its bid necessarily has to exceed Washington Mutual's, but it does have to get close, at least within $2 or $3 per share. Ahmanson's stock would have to climb by at least $3 from Thursday's close.
Based on Thursday's closing prices, Ahmanson's stock would have to climb by at least $3.
Ahmanson's stock closed Thursday at $40.375, off 87.5 cents for the day 12.5 cents lower than when it made its unsolicited bid for Great Western nearly a month ago. Washington Mutual stock dropped $2.375 Thursday morning, after Analyst Jonathan Gray of Sanford C. Bernstein blasted the thrift projections in a conference call with clients. Washington Mutual shares settled at $51.625, down $1.625 for the day.
The debate over which bid is better is likely to center on whether Washington Mutual can enhance revenues sufficiently to overcome a $60 million advantage in cost cutting opportunities Ahmanson claims it would have in its in-market merger with Great Western.
In the filing, Washington Mutual said the unexpected growth in net interest income would come from offering free checking accounts and a variety of products currently unavailable to Great Western customers, such as debit cards.
Todd Pitsinger, an analyst at Friedman, Billings, Ramsey & Co., said the Ahmanson offer may be more realistic. "Some of Washington Mutual's projections are really lofty," Mr. Pitsinger said, citing projected loan origination increases.
"The Ahmanson bid has a lower level of execution risk," he said. "Only two out of 10 things have to go right for Ahmanson to hit its targets, while Washington Mutual has to hit maybe eight or nine."
Mr. Pitsinger was skeptical that Washington Mutual would be able to retain as many customers as it hopes. "Whenever you have consolidation, you generally lose depositors. There aren't many exceptions to that."