Magazine article American Banker

First Bank System Buying U.S. Bancorp; Pricey $8.4B Deal Is Banking Industry's Fourth Largest Ever

Magazine article American Banker

First Bank System Buying U.S. Bancorp; Pricey $8.4B Deal Is Banking Industry's Fourth Largest Ever

Article excerpt

First Bank System Inc. announced an agreement Thursday to acquire U.S. Bancorp, joining an elite few banking companies poised to expand nationwide.

Valued at $8.4 billion, the deal would roughly double First Bank's asset size, to $70 billion, and provide the route to the Pacific Coast long coveted by the company's chief executive officer, John F. Grundhofer.

Mr. Grundhofer is paying dearly-more than three times book value-but he considers it an ideal strategic fit.

"These are two companies moving down the same strategic path," Mr. Grundhofer said at a press conference. Their complementary business lines, products, and systems "will enable us to leapfrog over the pack."

After the merger, the company would adopt First Bank's Minneapolis headquarters as its base, but it plans to take the U.S. Bancorp name.

Analysts said Mr. Grundhofer probably has his sights on further growth in his native state of California. He attempted to enter the Golden State last year in a failed white-knight bid for First Interstate Bancorp, which went to Wells Fargo & Co.

"A number of additional deals (could) be much easier to do now that they have an infrastructure in place," said Steven Schroll, analyst at Piper Jaffray Inc. in Minneapolis. He suggested Firstar Corp. of Milwaukee and Westamerica Bancorp. of San Rafael, Calif., are likely candidates.

First Bank, reincarnated as U.S. Bancorp, could also eventually be interested in whatever company results from the tug-of-war over Great Western Financial Corp. The Chatsworth, Calif.-based thrift has received an unsolicited offer from H.F. Ahmanson & Co. but prefers to merge with its white knight, Washington Mutual Inc. of Seattle.

Some analysts speculated that First Bank had its eyes on Great Western after its failure to win First Interstate.

"We have our hands full at the moment," Mr. Grundhofer said Thursday. "And we don't discuss future acquisitions."

First Bank and U.S. Bancorp are each superregional heavyweights in their own right. First Bank has expanded out of its Upper Midwest base to establish representation in 11 states, going as far West as Colorado and Wyoming.

Its bank-office network does not overlap in any of the six states where U.S. Bancorp, the leader in the Pacific Northwest, operates. The Portland, Ore.-based institution in recent years has moved east into Idaho, Utah, and Nevada, and established a toehold in California.

"They're going to become the Death Star," Salomon Brothers analyst Michael Plodwick said. "They've set themselves up for building a national franchise, and after BankAmerica and NationsBank, they're really in a position now to do that."

The acquisition, the fourth-largest in U.S. banking history, would make the post-merger institution the 14th-largest among bank holding companies.

It would also give the new company a sizable presence-in many cases among the top three in market share-in 17 states in the western third of the country.

U.S. Bancorp would bring to the deal the No. 1 share of deposits in Oregon and Idaho. First Bank is No. 1 only in North Dakota, though in the bigger states of Minnesota, Colorado, and Nebraska it is a strong No. 2. First Bank tends to shadow its Minneapolis-based archrival Norwest Corp., both of which had interstate branching authority before the recent wave of deregulation.

If approved by regulators and shareholders, the deal would result in the exchange of 0.755 First Bank share for each one of U.S. Bancorp. On the basis of share prices the day before the deal was announced, that ratio would bring the deal's value to $59.08 a share, or $8.7 billion in all.

The premium of 3.4 times U.S. Bancorp's book value and 17. …

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