1ST INTERSTATE TAKES OFFER\Wells Fargo wins merger for $11 billion.

Byline: Dawn Yoshitake Daily News Staff Writer

First Interstate Bancorp gave in Wednesday to Wells Fargo & Co., agreeing to be purchased for $11.6 billion.

Under the biggest bank merger in U.S. history, Wells will keep its name, close 350 branches of the combined bank but retain First Interstate's Los Angeles headquarters. Thousands of workers will be laid off, with the highest concentration in California.

The deal is expected to close by June 30, pending regulatory approval.

The announcement came two days after First Interstate said it was resuming talks with Wells Fargo, which launched a hostile takeover effort in October. Wells' stock bid grew to be $1.6 billion richer than a competing offer from First Bank System Inc. of Minneapolis, which had come to First Interstate's rescue.

Wells will exchange two-thirds of a share for every First Interstate share. Under that agreement, First Interstate shareholders will receive $152.33 per share. First Bank's offer, when the Wells deal was announced, was $130.65 a share.

Senior executives said no estimates are available for the number of layoffs, and they discounted reports that up to 7,000 workers will be terminated under the combined bank. But a First Interstate insider estimated job cuts could reach between 8,000 to 10,000 - or about 20 percent of the combined work force of 47,000.

First Interstate chairman and chief executive William Siart will be one person without a job, but he will leave with a $4 million golden parachute once the deal is completed. Paul Hazen of Wells Fargo will remain chairman and chief executive.

"We both agreed there is really one person who will run the company, and it was appropriate that I should do that," Hazen said in an interview.

Meanwhile, bank tellers and low-level managers receiving pink slips will receive a severance package of four weeks pay for every year with First Interstate or Wells Fargo. Higher-level executives will receive a minimum of one to two years' pay.

Customers, meanwhile, will likely see branch closures begin during the second half of 1996. Hazen said no details are yet available on product or service changes customers may see.

The deal marks the end of 92-year-old First Interstate, the last major bank headquartered in Los Angeles.

"We did our job. We built one of the best-performing banks in the country and created a winner with our shareholders," Siart said. "We're joining Wells Fargo and think it can be a great organization, a strong banking organization and the best in the country, in fact."

Wells Fargo, widely known as an efficient cost-cutter, plans to squeeze $700 million in annual cost savings from the merged bank, the nation's eighth largest with $108.4 billion in assets in 13 Western states.

Analysts largely applauded the merger. "This is a good deal for Wells in the short term," said Steven Schroll, an analyst with Piper Jaffray.

But the long term may prove more difficult if California heads into a severe recession.

"Wells has such a high concentration of its business in California that it could be trouble if we go into a hard recession," Schroll said. "More banks have gotten into trouble over the concentration issue. If the economy holds on, then there should be no problem."

Wells has a history of major acquisitions. The bank snatched up California-based Crocker Savings in the 1986.

"The Crocker people described that acquisition as a slaughter," an insider said. "The reputation Wells has on the street is that it is run in an authoritarian style, whereas First Interstate had its senior management and board much more involved."

Meanwhile, First Bank officials issued their own statement on the merger.

"I know I speak for all of us at First Bank System when I express our disappointment that our two great companies will not merge. The opportunity to work with First Interstate over these past few months has been a very positive experience. We have the highest regard for Bill Siart and the people of First Interstate," said John Grundhofer, chairman and chief executive.

First Bank will be paid $125 million in breakup fees, with an additional $75 million to follow once the merger is closed. First Bank has agreed to drop its lawsuit against Wells Fargo as a result, and other pending federal litigation has been dropped.

First Bank shares rose 1-1/2 to close at 51-3/4. Wells Fargo's stock climbed to 229-1/2, up 1, while First Interstate's stock jumped 2-1/4 to close at 149-1/4.