AHMANSON DROPS BID FOR GREAT WESTERN; COURT RULING ENDS HOSTILE TAKEOVER TRY.

Byline: Dave McNary Daily News Staff Writer

More than three months of bitter feuding ended Wednesday as H.F. Ahmanson withdrew its hostile bid for Chatsworth-based Great Western Financial, paving the way for a friendly $6.8 billion takeover by Washington Mutual.

The surrender came a day after a Delaware court denied Ahmanson's attempt to delay a June 13 vote by Great Western shareholders on the Washington Mutual bid and left Ahmanson with two options - sweeten its offer significantly or back down.

Ahmanson, which stunned the financial world in mid-February with an unsolicited offer worth $6 billion, had boosted the all-stock bid in March but refused to do so a second time because it would depress its stock price and earnings potential.

When Ahmanson raised its offer in March, its value was $400 million higher than Washington Mutual's but declines in the Ahmanson stock price resulted in the value of the bids being virtually even in recent days.

``We still believe that Great Western was an attractive partner but not at the expense of returns to our shareholders,'' Charles Rinehart, Ahmanson's chairman and chief executive officer, said in a statement.

Campbell Chaney, an analyst with Sandler O'Neill & Partners, said Ahmanson would have had to beat Washington Mutual's offer by at least 5 percent to get Great Western shareholders to support its bid.

Although Great Western's board never backed Ahmanson's offer, Ahmanson spent millions of dollars trying to convince shareholders it would be a better partner. The Irwindale-based company pledged to close 200 branches and promised annual savings of $400 million - a whopping 45 percent of Great Western's operating expenses and far more aggressive targets than Washington Mutual's plans to close 100 branches and save $208 million next year and $340 million by 1999.

Washington Mutual also spent lavishly in the industry's most contentious takeover battle since Wells Fargo & Co. beat out First Bank for First Interstate Bancorp early last year.

``The battle was certainly expensive,'' said Barry Rubens, president of consultant California Research and a former Great Western executive. ``Since I'm a Great Western shareholder, I was bombarded from both sides.''

Ahmanson will take charges for the costs of the failed takeover in its second-quarter results. Company spokeswoman Mary Trigg would not comment on how much the failed bid cost.

Analysts said Ahmanson's efforts were hobbled when Rinehart assured Ahmanson employees soon after the offer was made that they would keep their jobs if the takeover succeeded. Even though he later softened that statement, promising that staffing cuts would be even-handed, the tactic probably heightened Great Western's efforts to find a ``white knight'' that would not cut as severely.

``Rinehart really took people aback when he said that,'' said John Minor, an analyst with SNL Securities. ``Ahmanson possibly should have seen the handwriting on the wall at that point and given up.''

Ahmanson's basic strategy over the past three months had been to seek a delay in the June 13 shareholder vote for at least six weeks until after shareholders had elected three directors to the Great Western board. That trio would have then pressured management and the rest of the board to negotiate with Ahmanson.

But the court ruling Tuesday found that neither Great Western nor Washington Mutual had acted improperly and told Ahmanson its efforts should be directed at shareholders.

Ahmanson's decision means Washington Mutual will become the nation's largest thrift with assets of $87 billion, including about $60 billion in California, by early July. Washington Mutual will add 416 Great Western branches, including 296 in California, to the 471 it currently operates.

Additionally, the Great Western offices in California will retain the Great Western name and Seattle-based Washington Mutual will convert its 158 American Savings branches in California to Great Westerns.

Rinehart said in Wednesday's statement that Ahmanson will continue its three-year-old policy of becoming more like a full-service bank, which means expanding offerings like checking accounts, consumer loans and business services. He also said it would continue to seek acquisitions.

Analysts said Ahmanson's most likely targets are a pair of midsize Southern California operations: Glendale Federal, with $15 billion in assets; and Coast Savings, with $8.7 billion. Downey Savings, Fidelity Federal and First Federal have been mentioned as other candidates.

A spokesman for Glendale Federal declined to comment.

Chaney said Ahmanson also was likely to continue its strategy of diversifying from its core business of making mortgage loans with money raised from certificates of deposit. Great Western is among the leaders in pursuing that trend.

``Ahmanson has made significant progress since early last year,'' he said. ``I think it's a very good strategy.''

Wednesday's decision also means that Ahmanson, which operates the nation's biggest savings and loan in Home Savings of America with 387 branches and $50 billion in assets, may become a takeover target for the new Washington Mutual or a major regional bank such as Banc One, of Columbus, Ohio; Minneapolis-based First Bank; or Dallas-based First Nationwide, which recently bought California Federal.

``Ahmanson still has a lot of potential with a terrific branch network,'' Rubens said. ``It is certainly going to be part of the consolidation in the next few years. All the S&Ls are trying to be more bank-like.''

Assuming Great Western shareholders OK the deal next week, the purchase will be the second California thrift Washington Mutual has bought in a year. It purchased American Savings for $1.2 billion in July, setting itself up as a major rival to Wells Fargo & Co. and BankAmerica Corp., the state's largest financial institutions.

``We're pleased the shareholders have the opportunity to view the merits of this transaction and not be distracted by other alternatives,'' Washington Mutual Chairman Kerry Killinger said in a statement.

Great Western shares rose $1.375 to $48.75, while Washington Mutual gained $1.06 to $54.81 and Ahmanson was up $1.25 to $41.50 on Wednesday. Based on Tuesday's closing prices, Ahmanson's offer was worth $48.30 a Great Western share, while Washington Mutual's was worth $48.38 a share.