GWESTERN/30inches/1stjc/mark2nd

BENJAMIN MARK COLE

Senior Reporter

Among all the issues surrounding last week's attempt by H.F. Ahmanson & Co. to take over Great Western Financial Corp., one question stands out:

How did Great Western, the nation's second-largest thrift and a larger company than Ahmanson in some respects, including employment become a hostile takeover target?

How did it become the hunted, not the hunter?

Great Western officials aren't talking, but banking experts and industry analysts speculate that the answer has much to do with the company's conservative philosophy and the management style of its president, John F. Maher.

Maher ironically, a big-game hunter in private life busied himself tending to Great Western's gardens, rather than going out on the takeover warpath, analysts say.

"Maher has been trying to sell their mutual funds, building a consumer banking operation, and to complete an internal restructuring," said Campbell Chaney, a longtime thrift analyst now with Sandler O'Neill & Partners LP in Walnut Creek.

"He is not dynamic in relation to some of his peers, such as (Ahmanson's Charles) Rinehart, or Paul Hazen of Well Fargo."

Added Charlotte Chamberlain, an analyst with Jefferies & Co. Inc. in West Los Angeles: "Maher has clearly been pre-occupied with fixing his boat, not throwing a gangplank over and mounting another boat."

That preoccupation, if true, may soon spell the death of Great Western, one of L.A.'s oldest and strongest companies.

While it remained unclear last week whether Ahmanson or another company would emerge as the victor, industry analysts were largely agreed that Chatsworth-based Great Western would not survive.

"Great Western is toast," said Jeff Rollert, bond manager with ALM Advisers Inc. in Pasadena. "The question is when."

That assessment, while commonplace last week, was still surprising given Great Western's aggressive growth over the years.

Founded in 1919 as a local savings and loan, Great Western began its unbridled expansion in 1956 by acquiring Santa Ana Savings. That was followed over the next five years by acquisitions of smaller thrifts in Sacramento, San Jose, San Luis Obispo, Oakland and other cities.

The company continued to buy up thrifts in the 1960s and 1970s, gradually establishing itself as a powerhouse in home mortgages.

Its modern era dawned in 1979, when James Montgomery was named chief executive officer.

Montgomery, who remains chairman but surrendered the CEO title to Maher in 1995, expanded Great Western's offering of financial services. His acquisitions included Irvine-based Lincoln Savings Bank, the institution that fell to disgrace under Charles Keating.

Like many other thrifts, Great Western ran into problems in real estate in the 1990s.

Bad loans drove down profits, and thrifts had to offer new products consumer and business loans, for example while streamlining operations.

Maher, a former investment banker, was brought on to make Great Western more profitable and get the stock price up.

In that regard, he has succeeded admirably. Great Western's stock is up 30 percent in recent trading, and it has doubled in the last two years.

In 1997, the company is expected to post earnings of $2.74 a share, compared with $0.69 in 1996, according to a consensus of analysts projections.

But having beautified Great Western, Maher made it attractive booty to Rinehart and others.

Nor is it likely that Maher will lead Great Western in a takeover of Ahmanson, the old "Pac Man defense," said industry observers.

"Great Western is excessively conservative," Rollert said. "They wouldn't make a counter buyout bid like that."

Besides, according to Chamberlain, the market would likely sniff at a Maher bid for Irwindale-based Ahmanson, the parent of Home Savings of America.

She said that Ahmanson's institutional shareholders believe Great Western is "behind" Ahmanson in clearing bad debts off the books and modernizing its operations making it unlikely that Ahmanson shareholders would want to swap their stock for Great Western stock.

Nothing from Great Western last week appeared to contradict the consensus opinion by analysts. As of late last week, Great Western only said that it was reviewing the Ahmanson proposal.

Maher did issue an angry response to a voice mail message from Rinehart to Ahmanson employees.

In the message, Rinehart promised that no Ahmanson or Home Savings employee would lose their job or see a pay cut as a result of the merger.

No similar pledge was made for Great Western employees, leading Maher to say he was outraged by the comment.

"I find these statements, on a personal level, highly repugnant to my sense of values that business people must bring to their conduct in the marketplace," Maher said in a memo to employees.

Despite those strong words, Maher did not vow to fight the Ahmanson offer, saying only that "Great Western is fully evaluating H.F. Ahmanson's proposal to acquire our company and will respond after reviewing the proposal with our board of directors and advisors."

"They have three choices," said Chaney. "They can sell to Ahmanson, they can sell to a white knight, or they can reject the offer but their fiduciary responsibilities to shareholders make rejection difficult."

The early line was that Ahmanson would prevail, as no other bidder could match Ahmanson's offer, worth about $6.5 billion at market prices last week.

Ahmanson, by shuttering branches, wiping out Great Western's headquarters and other budget-cutting moves, estimated it could save $400 million annually in costs, following the buyout.

Out-of-state buyers, by contrast, would have to leave Great Western's branch network and 14,400 employees in place, thus achieving no savings in comparison to Ahmanson.

Shortly after making its bid public, H.F. Ahmanson retained the Century City-based MacKenzie & Partners Inc., a proxy solicitation firm, to handle the nuts and bots of lining up Great Western institutional shareholders.

Already in Ahmanson's arsenal of advisers and agents is the same legal and financial team that helped Wells Fargo acquire First Interstate: New York-based law firm Sullivan & Cromwell, San Francisco-based Montgomery Securities Inc. and New York-based Credit Suisse First Boston.

Ahmanson's war plan now is to line up institutional holders of Great Western stock, and arbitrageurs, to tender their shares to Ahmanson.

The 15 largest institutional shareholders control 45.1 percent of Great Western's stock. Arbitrageurs feckless, in terms of corporate loyalty have locked up at least 10 percent of Great Western's stock, given recent trading volumes, said analysts.

The institutions will seal Great Western's doom, predicted observers. "I don't care how many parades you hold, the institutions have a fiduciary responsibility to clients," said one proxy war veteran. "They'll vote with Ahmanson, unless a higher bid emerges."

Added Chaney of Sandler O'Neill: "This is an airtight bear-hug. It was completely unexpected, and there is no answer to it."

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