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Ahmanson in mega-deal
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March 17, 1998: 7:23 p.m. ET
Washington Mutual buys rival for $10B, creating financial powerhouse
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NEW YORK (CNNfn) - H.F. Ahmanson & Co. decided Tuesday that if you can't beat 'em, join 'em as it announced rival Washington Mutual Inc. will acquire it for $9.9 billion.
The purchase creates the nation's 7th-largest banking company based on total 1997 year-end assets of nearly $150 billion. More importantly for Washington Mutual, it will increase its hold on the lucrative California financial market, particularly in the home mortgage business.
"It is the powerhouse in the adjustable-rate lending business in the United States," said Jonathan Gray, banking analyst at Sanford C. Bernstein. "They'll make one out of every eight adjustable-rate mortgages in the entire country."
Under the agreement, Washington Mutual will exchange 1.12 shares of its stock (WAMU) for each share of Ahmanson (AHM). That values Ahmanson at about 80-3/8 per share, a sharp premium over its Monday closing price of 65-1/2.
The two West Coast companies battled it out last summer over Great Western Financial Corp. Ahmanson launched a hostile takeover bid for Great Western but Washington Mutual emerged as a white knight with the eventual winning offer of $6.94 billion.
Washington Mutual Chief Executive Officer Kerry Killinger was willing to let bygones be bygones, proclaiming that both companies are "cut from the same cloth."
"You compete very, very hard on the field, and when you're done you shake hands and get on with life-- and that was kinda then, now is now and this makes a lot of sense I think for all of our shareholders and we certainly look forward to moving ahead," he said.
"We now have a very strong and vibrant franchise that puts us in a good position to compete," he said.
The Irwindale, Calif.-based Ahmanson is a savings and loan holding company whose stronghold is in California, but also has interests in Texas, Florida and Arizona.
Ahmanson Chairman Charles Rinehart, who plans to leave after the merger, said he wanted to get the best deal he could for shareholders, given competition in California, spending on the Year 2000 problem and other issues.
"We realized that rather than being consolidator, we'd be a a consolidatee, and we concluded it would be in the best interest of shareholders to do it proactively," he said.
Washington Mutual, based in Seattle, is the largest thrift in the country and is a major force in the western United States. The company will take a merger-related charge of $370 million.
Together, the two will have nearly $86.3 billion in deposits and serve about 6 million households through 2,000 branches. They will have a 17 percent share of the extremely important California market, second only to BankAmerica Corp.
The combined companies will retain the name of Washington Mutual
The boards of both companies have approved the deal and the transaction now awaits shareholder and regulatory review. Washington Mutual and Ahmanson expect the deal to be completed late in the third quarter.
Writing on the wall
Ahmanson chief executive officer Charles Rinehart said that his company began seeking out a deal after sensing it would have trouble remaining competitive in the important California market.
It wasn't as if Ahmanson had been sitting still. The company made several large acquisitions in the past year, including the purchase of Coast Savings Financial Inc. for about $901 million in October.
Rinehart, however, felt the buyouts weren't enough. "We determined we were going to be a consolidatee rather than a consolidator," he said Tuesday. "We believed that scale was going to be important in order to compete in California and we were competing against companies that have many more resources than us."
Despite Rinehart's praise for the deal, he will retire from Ahmanson after the merger is closed. The move was not surprising, considering the companies' contentious history together.
While the deal will create a financial powerhouse, it also may create some worries among the combined work force. Because the companies' markets overlap and, in some cases, the two have branch offices across the street from each other, about 160-170 of those branches will be consolidated, the company explained.
Washington Mutual's Killinger said the company expects 3,000 to 3,500 positions also to be "consolidated" as a result of the merger.
He would not specify how many people eventually would be put out of work because some may be assigned to other areas.
Despite the human toll, the urge to gobble up competitors in the same market is strong for financial firms, said Jonathan Gray, banking analyst at Sanford C. Bernstein.
"Anytime you combine two savings and loans that operate in the same market, you can eliminate as much as 50 percent of the costs in the target company and roughly double its earnings power," he said.
The McDonald's of banking
Washington Mutual's mass market, consumer-oriented approach has led some to christen the company "the McDonald's of banking." The company favors consumer customers rather than corporate ones because businesses often require a large array of products and services while consumer banking is relatively more simple.
The company is a standout in two specific areas of consumer banking. Washington Mutual is the fifth-largest originator of mortgage loans and also has found its no-fee checking services to be especially popular.
The McDonald's analogy often raises the ire of Washington Mutual executives, but the company has proven itself adept at acquiring and integrating companies quickly.
Jim Schutz, banking analyst at ABN Amro said he expects little acquisition activity from Washington Mutual in the near future, however. (170K WAV) or (AIFF)
Banks looking to crack into the California market may be well-advised to move fast. With the purchase of Ahmanson, there are very few financial firms available in the Golden State.
Analysts consider Wells Fargo & Co. (WFC) to be one of the few remaining banks within reach of most willing buyers. Other smaller firms that also may attract interest are Golden West Financial Corp. (GDW) and Golden State Bancorp (GSB) Inc. 
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