CAL FED, 1ST NATIONWIDE TO CREATE 4TH BIGGEST S&L.

Byline: Dawn Yoshitake Daily News Staff Writer

Cal Fed Bancorp announced Monday it will be acquired by First Nationwide Bank in a $1.2 billion cash deal, marking the latest billion-dollar blockbuster S&L deal to hit California in the past two weeks.

First Nationwide, a San Francisco-based thrift controlled by New York financier Ronald Perelman, and Cal Fed will create the fourth largest thrift in the nation and the third largest in the state.

``This is a quantum leap toward completing a major franchise in California,'' said Gerald J. Ford, chairman and chief executive of First Nationwide. ``I think the California economy is diverse enough and has gone through its shakeout period, so I'm not worried about concentrating our business here.''

First Nationwide - with 117 branches in Northern California, Texas and Florida - has been looking to bolster its California presence since it underwent a major merger in 1994. Monday's package will give First Nationwide a presence in Southern California and Nevada, creating an institution with about $30 billion in assets and 235 branches.

The deal is expected to close during the first quarter next year, pending regulatory and shareholder approval.

Issues yet to be resolved include the name of the combined institution and its management structure. Layoffs, however, are not expected to be extensive.

``It hasn't been worked out, but, geographically, there's not a lot of overlap with our branches. We will, however, have some consolidation with our headquarters,'' said Janis Tarter, a First Nationwide spokeswoman.

Cal Fed employs 200 to 250 at its Los Angeles headquarters and has a work force of more than 2,300.

The thrift has nine branches in the Valley.

Under the proposed deal, Cal Fed shareholders will receive a cash payment of $23.50 per common share. The stock, which had traded in the $17 range from late March to mid-July, closed at $22-5/8 Monday, up from $21-3/8 Friday.

Cal Fed shareholders also will receive a portion of the proceeds in a pending breach-of-contract lawsuit against the government over the handling of failed S&Ls. For every 10 shares of Cal Fed's common stock, shareholders will receive one certificate that entitles them to a cut of a pool roughly equaling 60 percent of the net proceeds.

Meanwhile, Cal Fed shareholders who earlier had received special preferred stock series B certificates entitling them to a cut of the gross proceeds from the lawsuit will remain intact.

The merger comes on the heels of the announcement by Seattle-based Washington Mutual Inc. to acquire Irvine-based American Savings Bank for $1.36 billion.

These deals will be added to the 55 merger and acquisition announcements made to date this year, representing $4.8 billion in transactions.

Last year, 102 deals were announced totaling $6.9 billion.

``This deal is in line with other deals that have been done recently,'' said Art Bender, an associate analyst with Sutro & Co. in San Francisco.

Edward Harshfield, Cal Fed chief executive, said his S&L reviewed 32 merger and acquisition candidates in the past 18 months. And in late April, Ford with First Nationwide initiated a call to determine any interest on Cal Fed's part.

``He asked about our attitude toward a possible acquisition and I said, we're shareholder-value driven,'' Harshfield said.

Although Cal Fed also had contact with Great Western Financial Corp. and Glendale Federal Bank during that 18-month stint, it went no further than discussions with intermediaries, Harshfield said.

Great Western, which is moving toward offering more banking-type services such as consumer loans and products, did not fit strategically into Cal Fed's plans, Harshfield said.

Glendale Federal, meanwhile, would not provide a benefit to Cal Fed shareholders and employees and, hence, Harshfield did not pursue talks, he said.

First Nationwide, however, never initiated discussions with Great Western and some years ago took a look at Glendale Federal. But, in the end, First Nationwide determined that Cal Fed fit its need by being a comparable size, Ford said.

Paul Irving, a partner at banking mergers and acquisitions firm Manatt, Phelps & Phillips in Los Angeles, said the level of potential deals in California has risen substantially over the past few weeks and it's creating a ripple effect as other institutions gauge how they will respond.

``Banking managers are realizing they have options that they may not have seen before,'' Irving said. ``Most of the buyers over the last several years have been vultures looking for basement deals. Now, the better institutions with high-quality assets and good earnings recognize there's a market for them.''

Cal Fed, which announced its second quarter earnings Monday, reported a stronger performance than last year.

The thrift posted a 53 percent increase in second quarter profits to $36.1 million, up from $23.6 million a year earlier. The increase was partially driven by a $12 million gain on the sale of six San Diego County branches.

Assets, however, remained virtually flat at $14 billion, compared with $14.3 billion a year ago.

First National is privately held and does not report corporate results.

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First Nationwide Holdings Inc.

CalFed Bankcorp. Inc.