Washington Mutual Upped the Ante Before Snagging Great Western Deal

Washington Mutual Inc.'s initial offer for Great Western Financial Corp. was rejected because it was too low, according to records filed last week.

On March 5, Washington Mutual signed a definitive agreement to merge with the Chatsworth, Calif., thrift in a deal that converts each Great Western share into 0.9 shares of Washington Mutual stock. The deal is valued at $6.2 billion.

But Washington Mutual's original offer was less. The exchange ratio is said to have been about 0.85 shares for every share of Great Western-a 5.9% difference from the final price.

Documents filed with the Securities and Exchange Commission say that Great Western executives were enthusiastic about Washington Mutual's preliminary bid, which was made March 4.

But these documents go on to say that Goldman, Sachs & Co. and Merrill Lynch & Co., Great Western's investment banking advisers, called Washington Mutual to tell chief executive Kerry Killinger that the proposed share exchange ratio was "insufficient."

After consulting "certain members of the Washington Mutual board," Mr. Killinger upped the ante and the deal wass signed the next day.

"I'd be disappointed in Killinger if they took his first offer," said one investment banker who was not involved in the negotiations. "If they take your first offer, you know you've left something on the table."

The final price greatly affects how much the investment bankers in this complex and expensive deal get paid.

According to SEC filings, Goldman and Merrill will each collect a fee of 25 basis points off the total transaction cost, or about $16 million, once the deal is completed. Those two advisers have already collected $1 million in retainer fees and $8.8 million in fees when the merger agreement was signed.

Washington Mutual's investment banker, Lehman Brothers, would receive a flat $20 million fee-about 32 basis points-if the deal occurs by March 1, 1999.

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