Yesterday, wearing my investor hat, developer hat, architect's hat, business owner's hat and strategic thinking cap, I wrote about the various scenarios that might make sense for either J. P. Morgan Chase & Co. (NYSE: JPM) or Wells Fargo & Company (NYSE: WFC) to acquire Washington Mutual, Inc. (NYSE: WM).
Giving this further thought and drawing on some of how this could play out from yesterday's post I am wondering why this possible deal is not turning to frenzy. Perhaps all the parties are just playing hard to get. Maybe JPM and WFC have proved to be better navigators than most other large financial companies and that they fear being shipwrecked on the rocks of a Washington Mutual.
If I am Chase management, this deal makes too much sense to let pass. Adding WaMu's west coast footprint advances Chase goals in a fraction of the time it would take to build out a comparable branch network and at great savings. Add in the customers base and service operations minus all the overlapping departments and this is a winner. All that needs to be done is get to the bottom line and do the deal. Bankers should understand the time value of money and get on with it.
The opportunity for Chase is very clear. Wells on the other hand may feel that more organic growth and more methodical steps is the prudent path to continued success. That is perfectly understandable, but might be overly cautious in a very competitive environment. You either move forward or backward, you cannot stay in the same place.
Wells Fargo would benefit greatly from the increased scale and WaMu would benefit tremendously from superior management, something that seems to have been degraded at WaMu over time. I think the institutional culture is a much better fit than JPM/WM would be so the transition would be smoother.
While JPM would benefit from not having the costs of new construction (mostly signage initially) WFC would actually be able to sell off some valuable real estate and recoup much of its up front costs. In many cases the WaMu branches might be better situated than the WFC, so that the WFC branch might be the one to sell off.
I also think if Wells Fargo fails to act, they will have taken a major action just the same. Joining forces with WaMu would make a very formidable competitor for Chase or anyone else. Chase ($148 billion cap) is currently larger than Wells ($107 billion cap), but adding WaMu's $15 billion scales them up nicely. I think the Wells-WaMu combination is much better and offers greater rewards and opportunity.
Washington Mutual is probably worth much more then the current Wall Street appraisal but as long as it is floundering it will not be appreciated. Washington Mutual should be stoking the M&A fire at full blast.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WM.
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Reader Comments (Page 1 of 1)
2-28-2008 @ 12:43PM
Tom Hanks said...
I can tell you why this has not turned into a frenzy; WaMu management has zero interest in selling out.
Having had some experience with this group of executives I can tell you that they under-whelm at every opportunity. None of them will ever have the chance to run a major company again, given their abysmal performance at WaMu, so I believe that they will hang on for as long as possible. Further, and somewhat more disturbing, is my belief that they no longer have the shareholders' best interests at heart and that their primary motivation is financial gain and personal power.
In addition to the management team's personal interests in hanging on, there is always the issue of Mr. Killinger's truly inflated view of the value the enterprise. Rumor has it that WaMu has turned acquisition offers down before (Citi and HSBC). Both occurred when WaMu was trading at a significantly higher price than it is today. Of course there is also the rumored overture that JPMC made earlier this year. Nothing can happen, however, until Mr. Killinger realizes that his company is not worth $70 per share (I kid you not).
The problems at WaMu are large and run deep. And they all start with Mr. Killinger. Until he leaves or is forced out and his management team is turned over, no acquisition will occur and shareholders will continue to suffer. Hostile takeovers in banking do not often happen; when they do, the hostile party rarely ends up winning the target.
2-29-2008 @ 9:27PM
Alan Henry said...
It seems to me you are promoting a WAMU takeover, and it is the shareholders that will loose, although your pocket may grow bigger? It is the shareholders that count! Better to get rid of that synchopantic board, get board members that have stock ownership, and get Killinger and the board to get a better Radar screen. What they went thru, regardless of the "sector" didn't have to happen, if they were paying attention since 2004! Yes, 2004.