-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MZJJRp5tzUQbDJSpSZiNhcCptG+nqStta1rTBxCI0g5ojNEboTdzDcmX5TtcHo43 z6psKfO0UVKDV1IMpBBk9w== 0000912057-95-010189.txt : 19951121 0000912057-95-010189.hdr.sgml : 19951121 ACCESSION NUMBER: 0000912057-95-010189 CONFORMED SUBMISSION TYPE: DEFA14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19951117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANK SYSTEM INC CENTRAL INDEX KEY: 0000036104 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410255900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFA14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06880 FILM NUMBER: 95594733 BUSINESS ADDRESS: STREET 1: FIRST BANK PL STREET 2: 601 SECOND AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4302 BUSINESS PHONE: 6129731111 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK STOCK CORP DATE OF NAME CHANGE: 19720317 DEFA14A 1 DEFA14A SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) / / Definitive Proxy Statement / / Definitive Additional Materials /X/ Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 First Bank System, Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. / / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------ 2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------ 4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------ 5) Total fee paid: ------------------------------------------------------------------------ / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ------------------------------------------------------------------------ 2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------ 3) Filing Party: ------------------------------------------------------------------------ 4) Date Filed: ------------------------------------------------------------------------ [LOGO] FIRST BANK SYSTEM, INC. [LOGO] MERGER WITH FIRST INTERSTATE BANCORP NOVEMBER 17, 1995 - ------------------------------------------------------------------------------- The following material has been prepared by or on behalf of First Bank System, Inc. ("FBS"). FBS and First Interstate Bancorp ("First Interstate") have entered into an Agreement and Plan of Merger, dated as of November 5, 1995 (the "Merger Agreement"), pursuant to which First Interstate will be merged with a wholly owned subsidiary of FBS. FBS is the holder of an option to purchase 19.9% of the outstanding shares of First Interstate common stock, which option is exercisable under certain circumstances. In addition, FBS holds certain shares of First Interstate common stock in a fiduciary capacity. - ------------------------------------------------------------------------------- STRATEGIC RATIONALE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
FIRST BANK SYSTEM WELLS FARGO BUILDING A FIRST-RATE FRANCHISE NO GROWTH, FINANCIAL ENGINEERING STRATEGY - Expanding business lines: - Cutting Costs - Corporate Card Rank 1st - Purchasing Card Rank 1st - Buying back shares - Merchant Processing Rank 5th - ATM/POS Rank 1st - ..."much of the improvement from 1993 - Corporate Trust Rank 1st resulted from a lower loan loss provision - Asset Management Rank 4th and the effect of share repurchases, not from growth in our underlying operations." - Employing technology to reduce expenses and improve efficiency Wells Fargo & Company 1994 Annual Report, page 2 - Creating a highly efficient delivery structure: - Product/Distribution Paradigm - Telephone banking - ATMs - Supermarkets
3 FBS VS. WFC MERGER EVALUATION - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - FBS offers superior value to FI shareholders - WFC has overestimated cost takeout and underestimated revenue losses. WFC California advantage is less than $100 million - FBS has not included significant potential for additional revenue growth 4 FBS PROVIDES SUPERIOR EPS TO FI SHAREHOLDERS - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
1996 1997 1998 Base FI EPS $10.99 $12.53 $14.31 FI EPS - WFC/FI Combination $9.77 $12.18 $14.72 Accretion vs. Base (11)% (3)% 3% - ------------------------------------------------------------------------------- FI EPS - FBS/FI Combination $11.92 $15.61 $17.74 Accretion vs. Base 8% 24% 24% - -------------------------------------------------------------------------------
- --------------------------------------- - Based on "Street" estimates with normalized loss loss provision: 50 bp for First Interstate, 80 bp for Wells Fargo - $85 million net cost takeout benefit for WFC - Assumes acquisition date 1/1/96 5 FBS PROVIDES SUPERIOR CASH EPS TO FI SHAREHOLDERS - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
1996 1997 1998 Base FI Cash EPS $11.81 $13.40 $15.23 FI Cash EPS - WFC/FI Combination $12.35 $14.92 $17.65 Accretion vs. Base 5% 11% 16% - ------------------------------------------------------------------------------- FI Cash EPS - FBS/FI Combination $13.05 $16.81 $19.02 Accretion vs. Base 10% 25% 25% - -------------------------------------------------------------------------------
- --------------------------------------------------- - Based on "Street" estimates, adjusted for amortization of goodwill and intangibles, with normalized loss loss provision: 50 bp for First Interstate, 80 bp for Wells Fargo - $85 million net cost takeout benefit for WFC - Assumes acquisition date 1/1/96 6 EXCHANGE COMPARISON - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- FBS 1996 Cash EPS $5.20 WFC 1996 Cash EPS $17.05 FI 1996 Cash EPS $11.81 FI 1996 Cash EPS $11.81 Breakeven Exchange 2.27 Breakeven Exchange 0.69 Actual Exchange 2.60 Actual Exchange 0.67 Premium/(Discount) 14.48% Premium/(Discount) (3.75)% FI Ownership Percentage 58% FI Ownership Percentage 52% - ------------------------------------------------------------------------------- ---------------------------------------------------------------------------- FI Cash EPS - 1998 $19.02 --> Required WFC Exchange 0.76 ----------------------------------------------------------------------------
7 VALUE PER FI SHARE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
BASED ON BASED ON BASED ON CONVERGENT CONVERGENT TODAY'S CASH P/E REPORTED PRICE MULTIPLE (a) P/E MULTIPLE (b) FBS/FI $135.85 $151 $156 WFC/FI $139.58 $134 $121
- ------------------------------------------------------------------------------- (a) - 1997 FBS Cash EPS estimate is $5.75, implying a current price multiple of 9.1x based on a price of $52.25 at close of business 11/16/5 - 1997 WFC Cash EPS estimate is $19.46 implying a current price multiple of 10.8x based on a price of $209.375 at close of business 11/6/95 - Over time these multiples are expected to converge - breakeven P/E for FBS would need to be 9.6x to match value with Wells P/E of 10.8x - A convergent multiple of 9x Cash EPS was used for this computation (b) - 1997 FBS reported EPS estimate is $5.15, implying a current price multiple of 10.2x based on a price of $52.25 - 1997 WFC reported EPS estimate is $18.72, implying a current price multiple of 11.2x based on a price of $209.375 - A convergent multiple of 10x on 1997 reported earnings was used for this computation 8 FBS HAS OUTPERFORMED WFC ON A TOTAL RETURN BASIS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- This graph presents certain information regarding stock prices and CAGR for FBS and WFC. It shows a six year low for FBS stock $10.63 on November 2, 1990, and a six year low for WFC stock of $45.75 on September 28, 1990. It shows a November 10, 1995 stock price of $53.13 for FBS and $215.38 for WFC. It shows a five year total market return(1) as a percentage as CAGR of 42.9% for FBS and 39.7% for WFC. 1 Based on calculating total return for both companies from respective 6 year lows. 9 FBS DELIVERS SUPERIOR KEY PERFORMANCE RATIOS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Percent -----------------------------------------------------------------------
FI FBS WFC BASE @2.60 @.667 Return on Assets (a) 1.56 2.02 1.61 Return on Equity (a) 23.2 27.0 12.4 1995 - 1996 EPS Growth (b) 13.1 22.6 0.4 -----------------------------------------------------------------------
- --------------------------------------------------------------- (a) For the quarter ended September 30, 1995 Assumes normalized loan loss provision and full phase-in of cost takeouts (b) Assumes acquisition date 1/1/96 10 WILL INVESTORS IGNORE REPORTED ROE? - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3Q95 Book ROE ------------------------------------------------ Percent 1. Wells Fargo 30.4 ------------------------------------------------ FIRST BANK SYSTEM - PRO FORMA 27.0 ------------------------------------------------ 2. First Interstate 25.8 3. CoreStates 23.4 4. Norwest 21.5 ------------------------------------------------ 5. First Bank System 21.4 ------------------------------------------------ 6. Fifth Third 18.5 7. NationsBank 18.4 8. Northern Trust 18.3 9. KeyCorp 18.2 10. Fleet Financial 18.1 11. First Union 17.9 12. U.S. Bancorp 17.8 13. National City 17.7 14. Wachovia 17.5 15. Bank of Boston 17.3 16. Mellon 17.2 17. Banc One 17.2 18. Comerica 16.8 19. Barnett Banks 16.5 20. NBD 15.9 21. First Security 15.6 22. Shawmut 15.3 23. BankAmerica 15.2 24. SunTrust 14.1 25. PNC 13.5 26. Bancorp Hawaii 12.7 ------------------------------------------------ WELLS FARGO - PRO FORMA 12.4 ------------------------------------------------ Source: Montgomery Securities FBS & WFC pro forma alternatives are third quarter annualized earnings adjusted for normalized provision, full cost takeouts and acquisition entries 11 WILL INVESTORS IGNORE EPS GROWTH? - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1995 - 1996 EPS Growth Percent 1. PNC 18.3 2. First Union 16.6 3. CoreStates 15.6 4. Mellon 13.5 5. Norwest 13.5 ------------------------------------------------- 6. FIRST BANK SYSTEM - PRO FORMA & ACT. 13.2 ------------------------------------------------- 7. Fifth Third 13.0 8. NBD 12.6 9. Northern Trust 12.5 10. Banc One 11.9 11. Shawmut 11.8 12. BankAmerica 11.4 13. NationsBank 11.3 ------------------------------------------------- 14. WELLS FARGO 10.4 ------------------------------------------------- 15. Fleet Financial 10.2 16. Barnett 10.2 17. SunTrust 10.2 18. First Security 9.5 19. KeyCorp 9.3 20. Wachovia 9.3 21. Bank of Boston 8.8 22. Comerica 8.8 23. Bancorp Hawaii 8.0 24. U.S. Bancorp 6.8 25. National City 6.4 26. First Interstate 2.3 -------------------------------------------------- WELLS FARGO - PRO FORMA (0.1) -------------------------------------------------- Source: First Call 1995 and 1996 EPS estimates FBS and WFC pro forma alternatives are 1996 estimates adjusted for normalized provision and partial cost takeouts Assuming acquisition date 1/1/96 12 EXPENSE SAVINGS COMPARISON - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
FIRST BANK SYSTEM WELLS FARGO - - Cost reductions from FBS transaction - Major takeouts in occupancy and retail are revenue neutral and can be are inconsistent with revenue loss obtained quickly assumptions. Takeouts in Commercial and Trust relationship businesses are not credible - - Back office, systems, and staff cuts - Branch consolidations cause revenue have minimal revenue impact loss. Cost reductions from branch consolidations are slower to realize - - Common FBS/FI Hogan deposit system - Home-grown software impedes timely accelerates takeouts technology conversion - - Multi-state bank experience - Single-state, single-bank experience - - Proven record of extracting costs from - No significant bank acquisition since acquisition integration (22 in 4 years) Crocker (1986)
13 EXPENSE TAKEOUT COMPARISON - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
$ Millions FI FBS WFC ------------ ------------------------------------- --------------------------------- WFC vs. FBS 1996 BASE TAKEOUT TAKEOUT INCREMENTAL TAKEOUT TAKEOUT INCREMENTAL INCREMENTAL EXPENSE DOLLARS PERCENT EXPENSE DOLLARS PERCENT EXPENSE DIFFERENCE Staff/Executive $ 172 $ 114 66% $ 58 $159 92% $ 13 (45) Data Processing 214 83 39 131 110 51 104 (27) Operations 439 110 25 329 123 28 316 (13) Occupancy/F&E 394 39 10 355 170 43 224 (131) Business Lines: Retail 682 100 15 582 288 42 394 (188) Payment Systems 55 27 50 28 29 53 26 (2) Commercial 168 18 10 150 92 55 76 (74) Trust 79 9 10 70 29 37 50 (20) ------ ---- --- --- ---- ----- Total Business Lines 984 154 16 830 438 44 546 (284) Goodwill 60 0 0 60 0 0 60 0 ------ ---- --- --- ---- ----- Total Expense $2,263 $500 22% $1,763 $1,000 44% $1,263 (500) ------ ---- ------ ----- ----- ----- ------ ---- ------ ----- ----- ----- Marginal Efficiency Ratio 45% 35%
14 FTE TAKEOUT COMPARISON - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ------------------------------------------------------------ HOW CAN WFC RUN FI WITH JUST OVER HALF OF FI'S HEADCOUNT WHEN WFC HAS NO PRESENCE OUTSIDE CALIFORNIA? ------------------------------------------------------------
FI FBS WFC* --------- ---------------------------- -------------------------- 1986 FTE PERCENT FTE PERCENT BASE REDUCTION TAKEOUT REDUCTION TAKEOUT Staff/Executive 1,244 850 68 % 1,186 95 % Data Processing 896 450 50 596 67 Operations 7,946 2,280 29 2,549 32 Business Lines: Retail 13,216 1,830 14 2,551 42 Payment Systems 498 250 50 263 53 Commercial 2.900 290 10 1,635 56 Trust 1.300 130 10 459 35 ------ ----- ------ Total Business Lines 17,914 2,500 14 7,908 44 ------ ----- ------ Total Expense 28,000 6,080 22 % 12,239 44 % ------ ----- ------ ------ ----- ------
- ------------------------------------------------------------------------------- * Estimated by applying FBS' ratio (FTE takeout %/total cost takeout %) to WFC total cost takeout % 15 WFC NUMBERS ARE NOT CREDIBLE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $ Millions
COST TAKEOUT ASSUMPTIONS WFC $1,000 FBS 500 ------ Difference $500 ------ ------ EXPENSE SAVINGS* ---------------------- TOTAL ASSUMES ASSUMES EXPENSE ALL BRANCHES 75% BRANCHES WFC ADVANTAGE VS. FBS: BASE CLOSED CLOSED CALIFORNIA BUSINESS LINE OVERLAP Personnel Expense $290 $115 $84 Occupancy/Equipment Expense 130 130 94 Other Expense 75 30 22 ------ ------ ------ Total Expense $495 $275 $200 ------ ------ ------ ------ ------ ------
- -------------------------------------------------- * 100% savings in occupancy/equipment, 40% in personnel and other expense in closed branches 16 FBS VS. WFC - THE REAL GAP - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $ Millions
PRETAX INCOME CALIFORNIA CLOSED/MERGED BRANCHES: (75% OF BRANCH/OFFICES) Expense Savings 200 Revenue Loss: $2.2 billion, 15% deposit attrition* (110) ------ Net Closed/Merged Branches 90 CALIFORNIA MARKETING/ADVERTISING: (50% OF FI TOTAL) 20 DIVESTED BRANCHES: (15 BRANCHES/$900 MILLION) Expense Savings 30 Revenue Loss (55) ------ Net Divested Branches (25) ---- Total Gap 85 ----
- ---------------------------------------- * Deposit Attrition Revenue Loss = 3.5% net interest income, 1.0% deposit service charge, 0.5% all other income 17 WFC ESTIMATE OF REVENUE LOSSES RESULTING FROM THE MERGER IS UNDERSTATED - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - Front-office branch closings in order to justify the substantial cost savings will generate significant fall-off in customer revenues in those branches - Other California in-market acquisitions have resulted in 15-40% deposit attrition (BAC/SecPac, Great Western/Home Fed, Wells/Crocker) - Required divestiture of approximately $900 million in deposits is grossly understated: further review may require $1.6 billion of divestitures with much more revenue loss - A hostile transaction is likely to result in some of the depositors taking sides, which is likely to result in further revenue attrition 18 RETAIL CROSS-SELL OPPORTUNITY - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
FBS Cross-sell Ratio(a) 3.9 FI Cross-sell Ratio 2.6 ----- Cross-sell Ratio Opportunity 1.3 accounts/HH ----- ----- Number of FI Core Households 2.9 million Cross-sell Ratio Opportunity x 1.3 ----- New Product Opportunity 3.77 million Weighted Average Pretax Income per New Account(b) x $237 ----- Pretax Income Opportunity $893 million ----- -----
_________________________ (a) Cross-sell ratio based on products sold to core transaction account households (b) Based on FBS' current product profitability data 19 FUNDING ADVANTAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $ MILLIONS
REVENUE IMPACT - - Initial replacement of $4 billion of wholesale funding at FBS with First Interstate core funding (80 basis points) $32 - - Funding of FBS 1996 loan growth of $1.5 billion with First Interstate core funding instead of wholesale funding (80 basis points) $12 ---- $44 ---- ----
20 REDUCED RISK THROUGH DIVERSIFICATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FIRST BANK SYSTEM WELLS FARGO - - Risk diversified across 21 states - Risk is further concentrated in versus current 13 states California and territory remains limited to 13 states - - Top 3 ranking in 10 states - Top 3 ranking in only 4 states - - 30% of assets located in California - 70% of total assets and 78% of real estate loans located in California 21 SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - FBS offers superior value to FI shareholders - Higher exchange premium 14.5% vs. (3.8)% - Higher ownership 58% vs. 52% to FI shareholders - Higher 1997 EPS accretion 24% vs. (3)% and cash EPS accretion 25% vs. 11% - Higher share value - WFC has overestimated cost takeout and underestimated revenue losses - WFC California advantage is less than $100 million - Additional divestitures likely - FBS has not included significant potential for additional revenue growth - Retail cross-sell - Funding advantages - FBS/FI is the stronger franchise - Better geographic diversification - Growing high value business lines - Proven multi-state technology 22 Contact: John R. Danielson Wendy Raway Investor Relations Media Relations First Bank System, Inc. First Bank System, Inc. (612) 973-2261 (612) 973-2429 FIRST BANK SYSTEM STATEMENT ON WELLS FARGO OFFER Minneapolis, November 13, 1995. . .First Bank System, Inc. (NYSE: FBS) issued the following statement today relative to the announcement made earlier this morning by Wells Fargo (NYSE: WFC); FBS Chairman, President and CEO, John F. Grundhofer, said, "We are frankly startled by some of the assumptions used by Wells in justifying their revised proposal. We remain fully convinced that our $500 million cost takeout projections are attainable, but we are incredulous that Wells believes that it could operate First Interstate with $500 million less in expenses than we could. Given that the only advantage they have in terms of cost takeouts is California branch overlap and only one-fourth of First Interstate's $2.2 billion expense base is located in California, it is hard to see how these savings can be achieved. They'd have to close every First Interstate branch in California! Even if this expense reduction were achievable, how could the revenue loss be only $100 million? Even so, the Wells numbers assume that they could achieve higher levels of efficiencies in staff, data processing and operations than we could, despite Wells having no multistate operating experience and a very limited recent acquisition history. We, on the other hand, have had a highly successful string of 23 acquisitions in recent years. MORE... FBS/PAGE TWO We also believe it is extremely important for the First Interstate shareholders to focus on the fact that First Interstate shareholders would hold 58% of a combined FBS/First Interstate, as opposed to only 52% of a Wells/First Interstate combination. This means there is much more long-term value for the First Interstate shareholders under our proposal. With our offer, the cash accretion to First Interstate's shareholders would be 25% in 1997, versus 14% under the Wells offer. Wells' analyst presentation today valued its bid based on a Wells stock price of $230 per share--a price their stock hasn't approached in weeks. In fact, based on the current Wells price of $210.50, the actual value to First Interstate shareholders is only $140.33 as opposed to the $153 stated by Wells. We remain wholly committed to moving ahead with our definitive agreement, and plan to take our proposal to the First Interstate shareholders as soon as possible. In this regard, we filed with the Minneapolis Fed on Friday, and we intend to file our proxy statement with the SEC soon. This deal will close as planned." -30- -----END PRIVACY-ENHANCED MESSAGE-----