Citadel Rejects Great Western’s Purchase Offer

The parent company of Fidelity Federal Savings & Loan has strongly rejected a purchase offer from Great Western Financial, paving the way for a rare hostile takeover fight between two California savings and loan associations.

The rejection came from Citadel Holding, which issued a statement Tuesday after an all-day meeting Monday of the firm’s board of directors. The tender offer will be “vigorously opposed,” Citadel Chairman James A. Taylor said.

Citadel’s stance comes as little surprise in light of two court actions that it filed in Los Angeles last week to head off the purchase. But the language of the rejection was extremely blunt, with Citadel dismissing the offer as “grossly inadequate.”

Taylor suggested in a telephone interview that Citadel may be worth twice what Great Western is willing to pay. He also confirmed that serious efforts are under way to find a suitor willing to better Great Western’s price.

Plans to Proceed

A Great Western spokesman called Citadel’s action “regrettable” but added that his company plans to proceed with its offer. “We believe the shareholders should be given the opportunity to decide the merits of the offer, and that’s what we’re trying to do,” he said.

Great Western is offering to buy Citadel by exchanging 1.2 shares of Great Western stock for each share of Citadel. The value of the deal varies according to the price of Great Western’s stock, which closed Tuesday at $43.875 a share. Citadel’s stock closed at $52.

Great Western wants to buy Citadel because it covets its branch network and healthy earnings. Citadel earned $26 million in 1985, while Great Western earned $202 million. Fidelity Federal has 29 branches in Southern California; Great Western Savings has 230 throughout the state.

If the tender offer is successful, the combined concern is likely to be the largest savings and loan company in the country, with total assets of more than $28 billion.

The fight is likely to center around professional investors, who are believed to own as much as 70% of Citadel’s stock. Great Western says it is seeking at least 51% of Citadel’s shares.

Will Vote No

Citadel directors and employees, who own nearly 23% of the company’s stock--including two large blocks controlled by directors James J. Cotter and Alfred Roven--have already stated that they will vote against the merger, Taylor said.

Citadel’s other large shareholders include the New York-based investment banking firms of Goldman, Sachs (8.92%), E. F. Hutton (9.17%) and L. F. Rothschild, Unterberg, Towbin (5.67%), according to the company’s latest proxy statement.

The takeover battle is likely to drag on for most of the month because Great Western’s offer does not expire until April 25. Though Taylor urged Citadel’s shareholders not to accept the offer, he said those who favor it should wait until April 25 to tender their shares--presumably so they may weigh all options.

Review Panel

A special review committee of Citadel’s board has scheduled a meeting for next week to discuss the company’s alternatives. The search for a new offer is going on both inside and outside the S&L; industry, Taylor said in the interview.

Citadel executives say several large California S&Ls; have indicated privately that they would be willing to buy Citadel if the Great Western deal falls through. But those are not the most likely prospects, Taylor said. He declined to be more specific.

One possible suitor may be MacAndrews & Forbes, an East Coast company cited by Citadel Chief Executive Gerald Barrone as being “extremely interested” in Citadel. The interest was expressed through MacAndrews & Forbes’ investment banker last summer, Barrone said in a court declaration accompanying a Citadel lawsuit against Great Western.

Officials at MacAndrews & Forbes, based in New York, could not be reached for comment.