Wells Strengthens Takeover Bid by Raising Dividend 13%

In developments that strengthened its hostile takeover bid for First Interstate Bancorp, Wells Fargo & Co. on Tuesday boosted its stockholder dividend by a hefty 13% and reported better-than-expected fourth-quarter earnings.

Investors applauded, as shares of San Francisco-based Wells gained $4.25, to $214.625, on the New York Stock Exchange, increasing the pressure on First Interstate’s chosen merger partner, First Bank System Inc. of Minneapolis, to improve its lagging bid.

At Tuesday’s closing prices, the Wells bid was valued at $143.08 a share, or $10.87 billion, far higher than First Bank’s offer of $123.83 a share, or $9.41 billion. “If the spread [between the two bids] were close, you could have a lot of discussion about the relative merits,” said analyst Campbell K. Chaney of the Rodman & Renshaw investment firm in San Francisco. “But at $20 a share, it’s not even a horse race.”

Meanwhile Tuesday, First Bank and First Interstate received the expected but welcome news that the Justice Department will not oppose their proposed merger on antitrust grounds.

First Bank shares rose $1.125 to $47.625, while First Interstate rose $2 to $137.50. Analysts said the price increases reflected not only the antitrust news but also strong earnings by both banks and a good day in the market for the banking industry as a whole.

The Justice Department said its only conditions would be that First Bank sell a branch in Laramie, Wyo., and another in Riverton, Wyo., and that First Interstate sell a branch in Great Falls, Mont.--communities where the two banks overlap.

The Federal Reserve Board and Securities and Exchange Commission will also pass on elements of the merger plans. At the state level, California Atty. Gen. Dan Lungren announced Tuesday that he will examine how the rival deals might affect “branch distribution, deposits and lending patterns” in the state. The state superintendent of banks also has authority to review the proposals.

The Justice Department is still studying Wells Fargo’s rival bid, and a spokeswoman said a report will be ready in a few weeks. The antitrust consequences of that merger would be greater because Wells Fargo and First Interstate are direct competitors in many California markets.

First Interstate stockholders will vote on the merger at a meeting in late February or early March.

As the two camps continue their war of words, First Bank and First Interstate have emphasized Wells Fargo’s potential antitrust problems. Los Angeles-based First Interstate has also played the hometown political card, enlisting the support of both Mayor Richard Riordan and the Los Angeles City Council.

Wells Fargo partisans respond by pointing to the scoreboard--the stock market--where the gap between the Wells and First Bank bids has ballooned since Wells sweetened is offer in November.

“In the battle to see who can make their own situation appear the strongest, Wells has definitely won the latest round,” said analyst S. Jay Tejera of Dain Bosworth.

Although banks have some flexibility to plump up quarterly earnings by accelerating revenues or postponing certain expenses, analysts generally saw little evidence that either Wells or First Bank--which reported earnings last week--had performed such cosmetic surgery.

However, Wells has complete discretion over when to raise its dividend and by how much. The increase announced Tuesday--to $1.30 from $1.15 a share--was surprisingly large and seemed calculated to further enhance Wells’ attractiveness as a merger partner, analysts said.

Wells logged net income of $306 million, or $6.29 a share, for the fourth quarter, compared with $215 million, or $3.96 a share, for the year-earlier period. The more recent figure was boosted by a $94-million after-tax gain, and “normalized” net income was about $256 million, or $5.21 a share.

Also Tuesday, First Interstate reported a fourth-quarter profit of $215.4 million, or $2.66 a share, slightly up from $211.3 million, $2.65 a share, in the year-ago quarter.

Times staff writer Ronald J. Ostrow in Washington contributed to this report.

* STRONG PROFITS:

Major banks report higher quarterly earnings. D2

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Soaring Profit

Well’s Fargo & Co.’s fourth-quarter earnings rose 42% over the year-ago period, leading to a boost in its stock price and thus the value of its bid of First Interstate Bancorp. Quarterly earnings, in millions:

4th quarter 1993: $190

4th quarter 1994: $215

4th quarter 1995: $306

Sources: Bloomberg Business News, Times Reports