is drawing mixed reviews, apparently hurting its chances of success. Although Wells has increased the proposed stock-swap exchange ratio in its bid for First Interstate, stock trading gyrations have raised doubts about the actual market value of Wells' bid. That may tip the takeover battle in favor of suitor First Bank System Inc., experts said. "Wells Fargo's revised bid has met with a negative reaction from investors, significantly increasing the likelihood of First Bank System succeeding in its merger proposal and mitigating the need for a First Interstate response," said Francis X. Suozzo, a banking analyst at S.G. Warburg & Co., in a note to investors. Although Wells Fargo's stock regained some ground on Wednesday, the shares still are trading below their closing value on the day preceding Wells' hostile bid for First Interstate. As a result, investors are increasingly skeptical of Wells' chance of success, which the bank itself has predicated to a large degree on the value of its own stock. "Although Wells argued that the superiority of its bid would be reflected in the shares if investors believed they would win, this unusual argument clearly failed to sway the market, and in fact may have worked against Wells," said Mr. Suozzo. To be sure, Wells' stock could rebound once the proxy battle it said it would launch commences, or if several large shareholders publicly voice support for the bank's bid. But for now, Wells' bid is only slightly more valuable than First Bank's bid. Wells closed up $2.875 at $209.125, less than the $213.625 per share the bank closed on Oct. 17, the day before the bank's hostile bid was announced. At Tuesday's closing price, Wells' bid was worth $$139.47 per Interstate share, and First Bank's offer was worth $136.50 per share. First Bank rose 25 cents to $52.50 Some investors aren't waiting around to see who wins. Many arbitrageurs and traders were said to be closing positions in First Interstate and Wells Fargo, put off by the prospects of a six-month to one-year battle for the Los Angeles bank. Indeed, SIFE Trust Fund said it sold nearly all of its 130,000 Interstate shares late Friday, saying it would begin to buy Interstate again if the price dipped below $130 per share. First Interstate closed Wednesday up $1.125 at $132. On the other hand, some fund managers said it would take more time to ascertain which takeover bid for First Interstate is the best. Jeff Simon, a fund manager with MacKay-Shields Financial Corp., which owns 1.9 million First Interstate shares, said both Wells' and First Bank's bids were valid. He said he wanted to see how First Interstate would respond to Wells' new bid. "It's kind of a dead heat," said Lloyd Greif, president of Greif & Co., which owns several hundred thousand Interstate shares. In addition to launching proxy and legal battles, Wells Fargo on Monday increased its proposed takeover exchange ratio from five-eighths to two- thirds of a share for each First Interstate share. Many investors had expected Wells to increase the ratio to seven-tenths of a share. In a telephone conference with analysts on Monday, Wells officers insisted they were unconcerned with day-to-day stock movements, reiterating that their bid ultimately would be worth $260 a share. Analysts, however, were not so sure. "The odds favor First Bank System at this juncture," said Carole Berger, a bank analyst with Salomon Brothers. By raising the exchange ratio, she said, Wells Fargo "does little more" than pile more goodwill on its books. But some investors still favored Wells. Mark Goldstein, a portfolio manager with Neuberger & Berman, said Wells' bid was clearly superior and should prevail. But he conceded he was puzzled at the performance of Wells' stock. Still other experts said nonfinancial issues ultimately would determine the battle's outcome. Brent Erensel, an analyst with UBS Securities, cited "credibility, execution, and risk" as swing factors in a note to investors. "It is impossible to predict how Interstate shareholders will act, but at the end of the day the bid will win on nonfinancial terms," he said. First Bank System "is certainly the underdog," said Mr. Erensel, who cited the company's relatively smaller size, geographic distance from First Interstate, and lesser cost-cutting potential. On the other hand, Mr. Erensel said, First Bank "does have the advantage of being friendly" and having a definitive agreement with First Interstate. Thus, he said, the swing factor could be First Bank's tenacity. "It's not the size of the dog in the fight," quipped Mr. Erensel. "It's the size of the fight in the dog."
