assault on First Interstate Bancorp's agreement to merge with First Bank System Inc. The San Francisco bank upped its hostile bid for First Interstate by more than $3 a share, and said it would take the offer - now worth $10.6 billion based on Monday's closing stock prices - directly to the bank's shareholders in an exchange offer. Wells also moved in a Delaware court to invalidate First Interstate's corporate defense mechanisms. "From our prior conversations you know how determined Wells Fargo is to combine the operations of our two companies," chairman Paul Hazen said in a letter to First Interstate chairman and chief executive officer William E.B. Siart. "We remain more determined than ever." Some investors who had been pushing for Wells to top its original bid were disappointed the bank did not go higher with its offer Monday. "Wells did not go for a knockout punch today because they wanted to leave some powder dry," said Lloyd Greif, president of Los Angeles-based Greif & Co., which owns several hundred thousand shares of First Interstate. "That leaves the door open for First Bank System to increase its bid, but the implication is that Wells can make a better offer," he said. "Many investors were hoping Wells would raise its bid to 0.7 Interstate shares." Instead, Wells increased the bid's exchange ratio from 0.65 to 0.66 Wells share for each First Interstate share. As a result, the deal was worth $140.19 per First Interstate share at the close of trading Monday. Wells' shares fell $4.875 to $210.50. First Bank System's offer is worth $137.80 per share, for a deal value of $10.4 billion. The Minneapolis bank's shares fell 12.5 cents, to $53. First Interstate shares fell $1.25, to $133.50. First Interstate responded late Monday that its board of directors would "meet in due course to consider" the new bid. Wells launched its hostile bid for First Interstate almost four weeks ago. Last week First Bank System emerged as a white-knight suitor. On Monday Wells filed with the Federal Reserve Board of San Francisco seeking approval for its transaction. In the filing the bank said it would divest $905 million in deposits, 15 branches, and almost $900 million in assets to meet antitrust guidelines. The bank also filed a lawsuit in Delaware chancery court seeking to overturn First Interstate's shareholder rights plan. In the suit the bank also sought to invalidate the $200 million in breakup and lockup fees included in the First Bank System agreement. However, in its bid on Monday, Wells assumed it would have to pay the fees. Next week Wells plans to file its exchange offer with the Securities and Exchange Commission. When First Interstate sets the date of its shareholder meeting to approve the First Bank System deal, Wells said it would commence a consent solicitation to remove First Interstate's board of directors. In a letter to Mr. Siart of First Interstate, Mr. Hazen suggested bypassing this whole process and instead opting for a 10-day auction in which First Bank System and his bank would offer their best bids. "We would agree to a different process by which Wells Fargo and First Bank System would each be given 10 days to submit its best and final merger proposal," Mr. Hazen said in the letter, which was publicly released Monday morning by the bank. "As you know, the economic benefit to our respective stockholders that can be generated from the combination of our two companies is enormous, and far outstrips the benefits of a First Interstate-First Bank System combination," he added. Indeed, Wells Fargo's chief financial officer, Rodney Jacobs, publicly ridiculed the First Bank System offer before analysts. "If you are going to survive in this business, you need a strong sense of bull," he said. How a bank half a continent away can be a better match than Wells Fargo is hard to understand, he said. Using First Bank System's number, he said, Wells Fargo could achieve $1 billion in cost savings, instead of the $800 million it predicted four weeks ago. Mr. Hazen said Wells' largest shareholder, Warren Buffett, supported the increased bid, but would not say if the billionaire investor would support a higher bid. Mr. Hazen argued that Wells' new bid was worth $20 a share more than First Bank System's bid. Once the market is certain Wells will buy First interstate, he reasoned, Wells' price will rise, boosting the bid value to First Interstate shareholders to $160 a share. Mr. Hazen would not say whether Wells was set to raise its bid, but analysts said Wells probably is willing to go higher if First Bank System raises its offer. "Wells did not raise the bid that much, everybody thought they would come in with 0.7 per share," said Carole Berger, a bank analyst with Salomon Brothers Inc. "There is room for a higher bid."
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