By Dennis Oda, Star-Bulletin
Don J. McGrath, left, president and chief executive officer
of Bank of the West, and Walter A. Dods Jr., chairman and
CEO of First Hawaiian Inc., were all smiles yesterday
afternoon at the First Hawaiian Center building downtown,
where they announced the $1 billion bank merger.

First Hawaiian
merger gives it
regional power

But, in exchange, it trades
45% ownership to a
French bank

By Russ Lynch
Star-Bulletin

After trading 25.9 million shares of its stock for ownership of California's fifth-largest bank, First Hawaiian Inc. will change its name and the new company will be 45 percent owned by a Paris bank.

And after a four-year "standstill" agreement in which the French bank will not be allowed to increase its ownership beyond 45 percent, the Banque Nationale de Paris could become the 100 percent owner if certain conditions are met.

The stock market showed little enthusiasm today to the proposed $1 billion merger of First Hawaiian Inc. with Banque Nationale's BancWest Corp., the parent of Bank of the West. First Hawaiian closed at $37.63 today, up 25 cents.

Still, First Hawaiian's two biggest shareholders welcomed the deal, even though the issuance of 25.9 million new shares to the French bank will cut their ownership percentage nearly in half.

David Haig, chairman of the board of trustees of the Damon Estate, said the estate welcomes the change even though the issuance of new stock to BNP will dilute Damon's holding to about 13 percent.

He said the benefits include stronger profitability, greater long-term liquidity, less volatile earnings and potentially a higher stock price.

Haig said the estate was approached earlier this year and hired the investment firm of JP Morgan, which did an independent analysis and strongly recommended the deal. The estate's trustees, who include Dods, then voted unanimously to support the deal.

"I think that the kind of opinion that we got from JP Morgan should be of great comfort to any shareholder of First Hawaiian," Haig said."

Also facing the same kind of dilution of its holding and supporting the transaction is First Hawaiian's second biggest shareholder, Alexander & Baldwin Inc.

A&B's ownership would change to 3 percent of the merged company, to be called BancWest, from 5.5 percent of the current First Hawaiian Inc. But "we perceive that to be a change simply to a smaller percentage of a larger, more vital and more competitive entity with greater upside potential," John C. Couch, A&B board chairman, president and chief executive officer.

Damon's Haig and A&B's Couch are both members of the First Hawaiian board of directors.

The banks said the merger agreement prohibits Banque Nationale from buying more shares of the new BancWest on the open market after the four-year standstill period. In other words it won't be able to accumulate stock a little at a time to put itself into a majority position. However, it would be able to make a proposal to buy out all the remaining shares at one time to get 100 percent ownership.

Walter A. Dods Jr., who stays on as chairman and chief executive of the new merged BancWest Corp., says he is not worried about the size of the French bank or the size of its investment.

Dods told a news conference yesterday afternoon that he is comfortable working with a big shareholder.

Dods, who has been with the bank since 1968 and has been a director since 1979, said that he's dealt with major shareholders his entire career at the bank. He was referring to the Estate of Samuel Mills Damon, which is First Hawaiian's largest shareholder with a 25.4 percent stake.

Dods said the existing First Hawaiian Inc. shareholders will control the board of directors of the new BancWest Corp., holding 11 of the 20 seats, while nine will be appointed by Banque Nationale.

The big plus for First Hawaiian is that it gets to make a major expansion into California and the French connection -- with one of Europe's major banks supporting the new BancWest -- gives strength to the company and its stock, he said.

Banque Nationale is one of the world's largest commercial banks and France's third-largest with 2,000 branches. It operates in 76 countries. It has has been a good owner of the current BancWest Corp. and its subsidiary, Bank of the West, since 1980, said Don J. McGrath, president and chief executive of the current BancWest Corp. and of Bank of the West.

"They're a long-term player," said McGrath, who was with Dods at the news conference yesterday on the 30th floor of the new First Hawaiian Center.

McGrath will become president and CEO of the new BancWest but will remain based in San Francisco.

Whether the merger will have any impact on consumers remains to be seen. That will be one of the many aspects the federal regulators will look at in deciding whether to approve the merger, said Lynn Wakatsuki, commissioner of financial institutions for the State of Hawaii.

Dods said one positive aspect for First Hawaiian customers is that they will be able to use Bank of the West branches and teller machines while they are on the mainland.

There will be some layoffs -- about 400 or about 8 percent of the combined work forces of all the banks involved in the merger -- but Hawaii will gain 75 new high-technology jobs to be created at First Hawaiian's data center near Honolulu Airport, the companies said.

"The State of Hawaii emerges ahead because First Hawaiian maintains a majority interest and plans to create 75 jobs," Gov. Ben Cayetano said yesterday.

"This is a wise move by First Hawaiian that will generate bigger profits to benefit its customers, employees and shareholders. In turn, I expect this will have a positive effect on Hawaii's economy," Cayetano said.

The merger, which needs the approval of First Hawaiian shareholders and banking regulators, is expected to close in the fourth quarter of this year, Dods and McGrath said.

Pacific One Bank, First Hawaiian's Oregon-based subsidiary which has 38 branches in Oregon, Washington and Idaho, will merge into the 105-branch Bank of the West, which will continue to operate under that name. First Hawaiian Bank, which has 59 branches in Hawaii, two in Guam and one on Saipan, will continue to operate under that name.

The combined company will have 205 bank branches.

Dods said that unlike what happens in most bank mergers these days, no branches will be closed. That's because First Hawaiian, Pacific One Bank and Bank of the West all operate in separate markets, he said.

McGrath, wearing a First Hawaiian aloha shirt for the occasion, echoed that thought.

"We're not closing a lot of branches or dislocating customers," he said.

Joe Morford, an analyst with San Francisco-based Van Kasper & Co., said today that the arrangement gives First Hawaiian a chance to expand outside Hawaii's stagnant economy.

"One of the keys to the transaction is that it does accelerate First Hawaiian's efforts to grow the business outside Hawaii," said Morford, who listened to Dods and McGrath make a detailed presentation to analysts in San Francisco this morning.

Growth has been one of the company's biggest challenges, given the flat condition of Hawaii's economy, he said.

Mega merger facts First Hawaiian Inc. shareholders will own 55 percent of the new company. Banque Nationale de Paris, owner of BancWest Corp., will get 25.9 million -- or 45 percent -- of First Hawaiian Inc. shares. The French bank has agreed to a "standstill period" of four years in which it will not acquire more than 45 percent of the company's shares. The new company, to be called BancWest corp., will cut about 400 jobs, about 8 percent of the combined work force over 18 months, mostly through attrition. But First Hawaiian also says 75 high-tech jobs will be created in Hawaii at the company's operations center in Kalihi. Walter A. Dods, 57, chairman and chief executive of First Hawaiian, will be the chairman and CEO of the merged bank. Don J. McGrath, 49, president and chief executive of Bank of the West, will be president and chief operating officer of the new company. Merger is scheduled to close in the fourth quarter 1998, pending shareholder and regulatory approvals. The new company will have a 20-member board with 11 directors chosen by current First Hawaiian shareholders. The remaining nine directors will be selected by the French bank. The new company will be based in Honolulu but will have administrative offices in San Francisco.

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Star-Bulletin reporter Rick Daysog contributed to this report.