HOW FOE BECAME FRIEND\Favorable market turned tide for Wells.

Byline: Dawn Yoshitake Daily News Staff Writer

Paul Hazen was sitting in a San Francisco attorney's office Friday evening when the call came in.

Hazen, chairman and chief executive of Wells Fargo & Co., had a feeling his hostile bid for First Interstate Bancorp might turn friendly after getting the message that William Siart, chief executive of the Los Angeles-based bank, telephoned.

But before Hazen could return the call, he had to wrap up matters at hand. Hazen was giving a deposition to First Interstate attorneys regarding their lawsuits against Wells Fargo.

"He said he was interested in getting together to talk about a merger," said Hazen, whose own overtures to Siart in prior months had gone unanswered.

First Interstate's directors had met earlier Friday afternoon to discuss such a move while gathered in an elegant, ninth-floor boardroom around a large horseshoe-shaped table and deep black leather chairs.

Siart recommended two board actions. One was to inform its friendly merger partner First Bank Systems Inc. of its plans to seriously consider reopening discussions with Wells and, two, to approve the action to start that process, said an insider.

"We were concerned with what we saw in the marketplace," the insider said. "It had been conceivable that First Bank could raise its bid if the market got down to a $5 differential, but as we looked at the broad spread (in stock price) it looked less likely."

The board had watched the stock market's increasingly favorable reaction to Wells' competing stock swap offer over the First Bank deal. Earlier in the week, the board had seen the value between the two stock-swap offers reach a gap of more than $19 per share with Wells holding the higher card.

And when First Interstate's board learned earlier that day that First Bank would not be able to buy back its shares for two years, rather than after 90 days, that was the final straw.

With his board's blessing, Siart flew to Oakland International Airport on Saturday morning. He wanted to gain concessions such as retaining the Los Angeles headquarters, securing some seats on the Wells board for First Interstate directors and making sure that his bank's severance agreements were honored.

There in an airport meeting room, Siart and Hazen had their first face-to-face merger discussion in months.

"We had an extensive discussion and reached an agreement to go forward," Hazen said. Throughout the next day, the two remained in continuous contact.

Meanwhile, back in Los Angeles, the board gathered again Sunday to hear what Siart had to say about his meeting with Hazen. One director, John Bryson of Southern California Edison, conferenced in from Wales despite an eight-hour time difference.

"Because of concerns over SEC regulations regarding insider information, we felt it was optimum to deal with this before the markets opened on Monday," the insider said. "By late Sunday, we were in a position to support what management recommended us to pursue."

A First Interstate board meeting was set for Tuesday afternoon. And Wells marked a similar date on its calendar.

Long days led up to the Tuesday meeting. But helping to speed the process was an agreement between the parties to use the First Bank-First Interstate merger document as a template to create a Wells merger agreement.

"If we didn't have that First Bank agreement, we couldn't have done it this fast," the board member said. "People were working 18-hour days, not going out for meals and getting just enough sleep so they wouldn't be stupid."

Tuesday arrived and Wells directors approved the deal. First Interstate directors met in the afternoon after the market's close to vote. A unanimous decision was reached and, after praising Siart for his past work and efforts, the board launched into a round of applause to a stoic Siart, who loses his job under the agreement.

MERGER CHRONOLOGY 

Oct. 17. Wells Fargo & Co.'s Chief Executive Paul Hazen sends a letter to his First Interstate counterpart William Siart, proposing a stock-swap merger. Under the deal, every share of First Interstate's common stock would be exchanged for 0.625 share of Wells Fargo's common stock. Siart wanted six months to consider the deal. Wells declined.

Oct. 18. Wells publicly announces its hostile bid for First Interstate. Siart begins soliciting offers from First Bank System Inc., Norwest Corp. and Banc One Corp.

Oct. 26. Hazen meets with Siart and informs the chief executive that Wells Fargo will raise its stock-swap offer to 0.65 a share if First Interstate enters into a merger agreement. Siart rejected the offer.

Oct. 31. Siart and Hazen meet again. And this time Siart said he would be prepared to recommend a merger with Wells Fargo if the San Francisco-based bank would increase its exchange proposal to 0.68 for each First Interstate share.

Nov. 1. Siart and Hazen talk via telephone to try to reach an agreement, but no further progress is made.

Nov. 2-3. Hazen tries to reach Siart by phone, but his calls are not returned.

Nov. 6. First Interstate announces it entered into a merger agreement with First Bank System Inc. of Minneapolis, Minn. First Bank agreed to swap 2.6 shares of its common stock for every common share of First Interstate.

Nov. 13. Wells announced it would tender the shares for 0.667 shares of First Interstate stock, launch a hostile tender offer for First Interstate's stock, solicit proxies and consents from First Interstate shareholders to vote against the First Bank merger and attempt to replace First Interstate's board of directors with its own nominees.

Jan. 19. Securities and Exchange Commission rules First Bank cannot buy back its shares for two years, rather than its earlier planned 90-day period. That dealt a blow to First Bank's ability to rapidly increase its stock value.Siart contacts Hazen and indicates an interest to resume merger talks.

Jan. 20. Siart and Hazen meet in Oakland airport to discuss key provisions of a potential merger.

Jan. 21. First Interstate's board meets to review the information.

Jan. 22. First Interstate publicly announces it has resumed merger talks with Wells Fargo. First Bank files a lawsuit against Wells Fargo over allegations of interfering in the merger agreement and notes that First Interstate violated the agreement.

Jan. 23. Boards of both Wells and First Interstate approve an $11.6 billion merger agreement in the afternoon.

Jan. 24. The banks formally announce their merger agreement and employees are notified via messages left on recording machines at work, faxes and electronic mail sent over the computers.

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Box MERGER CHRONOLOGY (See text) Photo (1--Color) HAZEN (2--Color) SIART