BankAmerica’s Board Rejects Takeover Offer : Clausen Vows All-Out Fight Against ‘Hostile’ Moves by 1st Interstate

SAN FRANCISCO —  BankAmerica emphatically rejected First Interstate Bancorp’s $3.4-billion buyout offer Monday, saying it was “inadequate and undesirable.”

BankAmerica Chairman A. W. Clausen said during a news conference that the board of directors had unanimously voted earlier in the day to turn down the First Interstate bid and had authorized management “to take all appropriate steps to deter First Interstate’s hostile advances.”

He said he had asked Sen. Alan Cranston (D-Calif.) to hold hearings on the proposed merger to demonstrate that it is not in the public interest. “We’re going to come out fighting with everything we have, including public hearings,” Clausen said.

Cranston’s office referred the matter to Sen. William Proxmire (D-Wis.), new chairman of the Senate Banking Committee, Clausen said.

BankAmerica’s rejection almost certainly means war with Los Angeles-based First Interstate, whose aggressive chief executive, Joseph J. Pinola, has vowed to pursue the deal with or without the cooperation of BankAmerica’s board and management.

In a statement issued late Monday, First Interstate said it was “disappointed” by the BankAmerica decision. “Moreover, we find it regrettable that the BankAmerica board decision to reject that offer was made by the board and management without even exploring or discussing with us the very substantial benefits that will result from a merger,” the statement added.

Based on Pinola’s past actions and comments, analysts expect him to press his takeover bid directly to BankAmerica’s shareholders through an exchange offer.

First Interstate indicated its seriousness about the proposal last month when it applied for Federal Reserve Board approval of the merger and registered with the Securities and Exchange Commission the securities it plans to use in the takeover.

Clausen said Monday that a “new business plan” devised by BankAmerica management will return the loss-ridden banking company to sustained profitability this year. He said an independent BankAmerica is in the “best long-term interests of BankAmerica shareholders, employees, customers and the communities we serve.”

San Francisco’s BankAmerica, parent of Bank of America, the nation’s second-largest bank, will continue to lay off thousands of workers, close offices around the world and sell assets and subsidiaries as part of its plan to regain profitability, Clausen said. The company will conserve capital by not restoring the dividend, which was suspended last January, at least until 1988, Clausen indicated.

He added that the company also plans to raise new equity capital to bolster its weak capital position.

Frank N. Newman, BankAmerica vice chairman and chief financial officer, said the firm would sell a “substantial” new issue of stock to individual and institutional investors early in 1987. He said it would be premature to state the dollar value of the new equity issue.

Newman belittled the package of securities that First Interstate will offer to finance the takeover. First Interstate values the package of common stock, preferred stock and interest-paying notes at $21 a share.

“If our shareholders were able to realize $17 a share in cash, they’d be lucky,” Newman said. “These securities are a joke.”

Clausen said the proposed merger probably could not win regulatory approval because the resulting company would be seriously undercapitalized and would drain $1.6 billion in equity capital from the nation’s banking system.

Clausen said the package of securities that First Interstate is offering in exchange for BankAmerica shares is of “uncertain value and questionable marketability.” He described the offer as “vague and highly conditional.”

And, in a slap at Pinola and his executive team, Clausen said: “I’m not impressed with the management capabilities of First Interstate and neither is our board.” Pinola spent 25 years at BankAmerica, several of them as a subordinate to Clausen when Clausen was the bank’s chief executive between 1970 and 1981.

Clausen was called back to lead the bank in October after the board ousted former Chief Executive Samuel H. Armacost, who ran the company during its five-year decline from 1981 to 1986.

Raises ‘Valid Questions’

Banking analyst Donald K. Crowley of the San Francisco office of the securities firm of Keefe, Bruyette & Woods, said the BankAmerica statement raises “valid questions” about the value of the First Interstate offer and the viability of the combined company. But he added that Pinola is unlikely to be deterred by Clausen and the BankAmerica board of directors.

“I suspect First Interstate has pretty much heard it all and will continue to push on,” Crowley said. “I view this as part of the prolonged public debate about the proposed combination. It’s not the last word, definitely.”

Victor F. Zonana reported from San Francisco and John M. Broder from Los Angeles.