Outbidding two big banks, Washington Mutual Sayings Bank has agreed to buy Seattle rival Pacific First Financial Corp. for $663 million in cash.
The acquisition will nearly double the assets of Washington Mutual, to about $16 billion, and greatly expand its market share in the Northwest.
In Washington, it will emerge as a strong No. 2 in deposit share - just behind BankAmerica Corp.'s Seafirst unit. And in Oregon, it will leap from an also-ran position to being the fourth-ranking deposit-taker.
Investors greeted the transaction enthusiastically; Washington Mutual stock was trading at $29 a share late Tuesday, up $3.50. "This is a home run deal," said R. Jay Tejera, an analyst at Dain Bosworth, Seattle. "It moves these guys from Triple A to the big leagues."
Washington Mutual, the biggest thrift in the Pacific Northwest, is acquiring Pacific First from Toronto-based Royal Trustco Ltd. The purchase price is a premium of 1.36 times Pacific First's tangible equity of $488.1 million. The premium equals roughly 4% of Pacific First's $4.2 billion in deposits.
That's somewhat more than some analysts had anticipated, but in exchange, Royal Trustco is keeping a greater than expected amount of problem assets.
Shield from Credit Risk
Terms of the deal protect Washington Mutual from credit risk by requiring Royal Trustco to keep about $673 million in Pacific First assets. These include most of its problem loans - mainly commercial real estate credits in California and the Northwest.
Washington Mutual will also have the right to put back up to $225 million in assets.
Royal Trustco announced its intention to sell Pacific First - parent of Pacific First Bank - several months ago, after the extent of its own credit-quality problems became apparent. First Interstate Bancorp, Los Angeles, and Norwest Corp., Minneapolis, also bid, sources said.
But First Interstate was said not to have pursued its bid aggressively. And Norwest, which had no opportunity for in-market cost savings, presumably could not match Washington Mutual's offer. Neither company would comment.
Bolstering the Numbers
Washington Mutual has $8.4 billion in assets, $5.4 billion in deposits, and 135 branches and mortgage offices in Washington and Oregon. Pacific First has $6.9 billion in assets and 138 branches and mortgage offices in the two states. The latter figure includes a pending exchange of nine Pacific First branches in California for 13 branches of Great Western Bank in Washington.
The addition of Pacific First-plus completion of a pending acquisition of Pioneer Savings Bank, Lynnwood, Wash. - will catapult Washington Mutual to about $16 billion in assets, $10 billion in deposits, and 291 retail offices.
Washington Mutual said it expects to reduce total assets to roughly $14 billion through loan sales and other actions to trim the balance sheet. It will aggressively consolidate branches and back-office operations, but officials said they didn't yet know how many branches will be closed or how many jobs lost.
The thrift said it expects to save $45 million to $60 million a year by 1995.
To finance the Pacific First purchase, Washington Mutual expects to raise $150 million to $200 million in additional capital. Chairman and chief executive Kerry Killinger said in an interview that the thrift will raise equity by issuing preferred stock, convertible preferred, common stock, or some combination of the three.
Royal Trustco will accept up to $150 million of Washington Mutual noncumulative convertible perpetual preferred stock in lieu of cash, according to the agreement, if market conditions prevent the thrift from issuing equity. For Royal Trustco, sale of Pacific First is a painful abandonment of its once-ambitious U.S. plans.