`I'll See You And Raise You $100 Million'

During their annual retreats in the bucolic Napa Valley, Wells Fargo & Co. executives regularly stayed up until the wee hours playing a riverboat card game called bourre. Colleagues remember Paul Hazen, now chief executive of the $50 billion-in-assets bank, as a fierce player who did not shy away from the big bet. "He had a distinctive way of playing," recalls former Wells Vice-Chairman David Petrone. "He was a little more of a gambler than the rest of us." John F. Grundhofer, a senior Wells executive and another aggressive player who left in 1990 to become CEO of Minneapolis' First Bank System Inc., was often an opponent.

These days, those two executives are sitting across a table with much higher stakes, and competing just as fiercely. Battling for control of Los Angeles-based First Interstate Bancorp, Hazen made a third hostile offer on Nov. 13 at $137.50 per share, or $10.4 billion, topping Grundhofer's friendly $10.3 billion, $135.85 per-share deal announced Nov. 6, and Wells's original Oct. 18 hostile bid of $128.90 per share. Hazen also laid the legal groundwork for a proxy fight.

Little known outside of Wells when he took over the CEO slot a year ago, Hazen, 53, had to up the ante to continue the high returns investors expect from Wells. He needs the massive cost savings and asset growth the deal would provide. "This is the best opportunity for Wells to grow longer term," says Donaldson, Lufkin & Jenrette Inc. analyst Thomas K. Brown. "If they lose, the best acquisition would be gone."

LOFTY RETURN. A Wells-First Interstate combination would be the largest bank deal in U.S. history. And for Hazen, Wells watchers say, the struggle over First Interstate has become a personally defining moment. Most of his career has been spent playing second fiddle to the renowned Carl E. Reichardt, the swaggering Texan who turned San Francisco-based Wells into one of the nation's toughest and most successful banks.

"I believe firmly we are going to succeed at FI," says Hazen. "The longest it may be is a four- to six-month time frame." Wells is promising $800 million in cost savings, $300 million over First Bank's offer, thanks in large part to overlap in the banks' franchises. Wells likely will eliminate 2,000 more jobs than First Bank, cut more occupancy costs, and streamline the retail businesses. Some 300 California branches could be closed. Wells estimates that acquiring First Interstate will add only $1.2 billion in costs, $500 million less than First Bank projects. And it is promising shareholders a lofty 26% increase in return on their investments in 1997 (table).

Whether Hazen's gambit succeeds depends in part on investors. So far, many, including arbitrageurs who now hold 15% of the stock, back the hostile bid. "I'd vote for Wells in a minute," says William C. Field of Boston-based Pioneering Management Corp., whose company owns around 1.6 million shares of First Interstate. Warren E. Buffett, who holds stakes in Wells and First Bank System, also stands behind the Wells bid.

First Bank Chief Financial Officer Richard A. Zona is trying to change such voters' minds, arguing that Wells's projections are overly optimistic and his bank's deal is better. He says First Bank can quickly generate $500 million in savings, chiefly by combining back-office operations, and Wells would have to cut 93% of First Interstate's staff to save what it is promising. He says First Bank won't be upping its bid. "Why should we when we have the best offer on the table?" he asks.

Critics say Hazen should have bid higher the second time around, taking the chance to throw a knockout punch that First Bank could never rival. But supporters applaud him for not overbidding. Many believe he has left himself room to up the offer if he chooses. That's a position any gambler would envy.

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