B of A Appears in No Hurry to Decide on Takeover Bid

SAN FRANCISCO —  BankAmerica’s board of directors is likely to defer a decision on First Interstate’s Bancorp’s $3.4- billion takeover bid when it meets here Monday, arguing that it needs more time to study the offer and to explore alternatives that would preserve the troubled banking company’s independence.

Sources said the board will conclude that it would be unfair to BankAmerica’s shareholders, employees and customers around the world to accept or reject the proposed merger without closer scrutiny. The board had been all but certain to reject First Interstate’s original $2.8-billion offer as inadequate.

The board is expected to ask its financial and legal advisers to provide a detailed valuation of the company, which it then may use as evidence that the First Interstate offer is far below the company’s liquidation value.

At the same time, the directors will examine alternatives to the First Interstate bid that BankAmerica’s investment banker, Salomon Bros., is known to be studying. These alternatives include an infusion of capital--most likely from an overseas bank--and an acceleration of BankAmerica’s asset-sale program.

BankAmerica has hired a real estate firm to conduct appraisals of its valuable California properties and may be planning to sell and lease back a number of well-located branches in order to raise quick cash, knowledgeable sources said. The bank sold its landmark headquarters buildings in San Francisco and Los Angeles in the past year and is now leasing space in the buildings.

BankAmerica has received a number of offers for its Seafirst bank subsidiary in Washington. Sale of the unit could bring in as much as $1 billion before taxes. BankAmerica is also seeking a buyer for its consumer banks in Italy and West Germany and has indicated that it will listen to offers on any other property from any potential buyer.

“They’re going to bust it up and sell it off,” said a former high-ranking BankAmerica executive who left the company earlier this year.

Such alternatives would be designed to speed up BankAmerica’s return to profitability and bolster the company’s stock price in an effort to placate unhappy shareholders who might be tempted by First Inter state’s $22-a-share offer.

BankAmerica stock closed Thursday at $15.375, down 37 1/2 cents. First Interstate’s share price fell 12 1/2 cents, closing at $54.25. The inconclusive trading indicates skepticism about the value of the First Interstate offer and its prospects for success, analysts said.

Several foreign banks have expressed interest in providing BankAmerica with new capital in the form of subordinated debt notes that could later be converted to common shares, a banking industry source said Thursday. Such an investment, for up to 9.9% of BankAmerica’s equity value, could be accomplished without complicated regulatory approvals, the source said.

The foreign banks, including some of the biggest banks in West Germany and Japan, have already discussed such a capital infusion with U.S. banking regulators and are reported to have received a preliminary go-ahead. They have instructed their investment bankers to approach BankAmerica with their offers, the source said.

There have been several public offers to raise capital for the beleaguered banking giant. This month alone, two investor groups proposed to raise $1 billion in order to keep the company under local control. One was led by Richard Blum, an investment banker and husband of San Francisco Mayor Dianne Feinstein, the other by corporate turnaround specialist Stanley Hiller of Menlo Park, near San Francisco.

BankAmerica has not responded publicly to the Blum and Hiller proposals.

“This board has shown again and again that it will not be stampeded,” said a New York investment banker who has worked with BankAmerica in the past.

BankAmerica has neither responded to First Interstate’s request for a meeting to discuss the merger proposal nor asked for more information on that company’s sweetened bid, sources said, lending credence to the view that the board will defer a decision on the bid. The offer was delivered late Tuesday to A. W. Clausen, BankAmerica’s chairman and chief executive.

“This is a board that has just gone through the ordeal of replacing a chief executive,” one BankAmerica adviser said, referring to Clausen’s recent return to the company’s top job, replacing Samuel H. Armacost. “Maybe they don’t have a clear view yet themselves. Whatever their response is, it will have to be very persuasive.”

Clausen has said that his chief goal is to return the bank to profitability and restore the common stock dividend, which was eliminated in January.

First Interstate structured its latest bid to appeal to shareholders, saying it will immediately begin paying as much as $1 a year per share in dividends.

The directors’ deliberations will likely be influenced by their fear of being sued by shareholders, who have already filed 20 such lawsuits against officers and directors. BankAmerica provides coverage for directors and officers through a captive insurance subsidiary in the Cayman Islands.

But with 155 million shares of BankAmerica stock outstanding, rejecting First Interstate’s $22 a share offer without taking other action to enhance shareholder value could leave directors open to claims that would bankrupt the insurance unit and wipe out their personal wealth. If B of A stock fell back to its recent level of $12 a share, disgruntled shareholders could plausibly seek more than $1 billion in damages.