Great Western Drops Offer for Citadel Holding : Citadel Officials Claim That Few Shareholders Were Willing to Sell Stock

Great Western Financial announced Monday that it has “terminated” its offer to buy the parent company of Fidelity Federal Savings.

In a terse statement, Beverly Hills-based Great Western said its “offer for the common stock of Citadel Holding Corp. has been terminated in accordance with the terms of the offer. None of the tendered shares have been purchased.”

Jubilant Citadel officials estimated that only a small minority of their shareholders--perhaps less than 5%--had been willing to sell their stock to Great Western. Citadel shareholders had been offered 1.2 shares of Great Western stock for each share of Citadel that they own.

Major Victory for Roven

“We thought we were going to win, but we were not expecting a victory of this proportion,” Citadel Chairman James A. Taylor said in a telephone interview.

The results represent a major victory for Citadel director Alfred Roven, the private investor who gained a large foothold on Citadel’s board last year and has fought Great Western’s offer tooth and nail ever since.

They also amount to a lopsided defeat for the policies of James Montgomery, Great Western’s chairman, who forged ahead with the costly offer even though it had been branded as “grossly inadequate” by Citadel’s board.

The two Southern California savings and loan firms agreed to a friendly merger last May, but the deal was canceled several months later at Citadel’s insistence. Great Western then launched its tender offer in January as an effort to enforce the terms of the original merger agreement.

Great Western sought to acquire at least 51% of Citadel’s stock through the tender offer, which expired Friday. Citadel has about 3.3 million shares outstanding and has issued options for another 150,000 shares.

Continue to Press Lawsuit

Great Western declined to disclose the shareholder tally. “We’re not going to say any more” than what was in the company’s statement, spokesman Clifford Miller said. Montgomery was said to be out of town and not available for comment.

Great Western said it “would continue to review various options and legal remedies available to it.” A company spokesman confirmed that this means that Great Western will continue to press a breach-of-contract suit against Citadel that is pending in Los Angeles County Superior Court.

The takeover battle was marked by a series of court fights and corporate maneuvering, costing the two financial institutions several million dollars in legal and investment banking fees. Great Western alone estimated its takeover-related costs at between $2.5 million and $4.5 million.

If the tender offer had been successful, it would have created a financial institution with about 260 branch offices in California and more than $28 billion in assets throughout the country.

It was only a few weeks ago that Wall Street analysts were saying that Great Western had the contest won. But an aggressive advertising and shareholder solicitation effort turned the tide in Citadel’s favor in the past two weeks, Taylor said.

Particularly helpful were newspaper advertisements published last week that sought to show how Great Western’s offer suffered in comparison with the prices being paid for other savings and loans in recent weeks, Taylor said.

He also said he believes that Great Western became complacent because it was so sure of victory.

“I think they thought three weeks ago that they had it bagged, and they just sort of forgot about it,” Taylor said.

Great Western’s attitude was not lost on Citadel investors. Thomas Klingenstein, an analyst for the investment firm of Wertheim & Co. in New York, said: “We own some stock (in Citadel), and they didn’t even call us.”

What’s more, Citadel’s stock in recent days had a market value higher than the Great Western offer. For example, the offer was worth $50.25 a share at the close of trading Friday, while Citadel’s stock closed at $52.87 1/2.

“No sane (professional investor) would have tendered his shares under those circumstances,” noted Jerry Baron, analyst for First Boston Corp. in New York.

Meanwhile, Citadel is open to other offers if the price is right, company officials said. “We’ve already gotten calls from interested parties,” Taylor said. “They started calling over the weekend when they smelled how the vote count was going to turn out.”