Citadel Offers $107.3 Million in Bid for Valley Federal S

Citadel Holding formally offered to buy Valley Federal Savings & Loan on Thursday for $18.50 a share in cash, or $107.3 million, but said it is prepared to pay more if Valley Federal draws competing bids from other S&Ls.;

Citadel, the Glendale-based parent of Fidelity Federal Savings & Loan, already has options and commitments to buy 39.2% of Valley Federal’s stock and has said for two months that it wants to acquire Valley Federal, a Van Nuys-based concern with $3.1 billion in assets and 47 offices.

However, Citadel has said its attempts to negotiate a merger were rejected by Valley Federal. In addition, Valley Federal announced last week that it is holding merger talks with another California thrift that it did not identify. But industry sources said the friendly suitor is Home Federal Savings & Loan of San Diego, a major thrift with $14 billion in assets and 168 branches. Home Federal has declined to comment.

Below Market Offer

Gerald S. Haims, a bank analyst with Seidler Amdec Securities, said Citadel’s offer appears designed to “smoke out a Home Federal bid,” if indeed the San Diego thrift is about to make a competing offer.

David Fleming, Valley Federal’s outside counsel, said it is unlikely that Valley Federal will respond to Citadel’s offer until its board meets to review the proposal, which was made in a letter from Citadel Chairman James A. Taylor to Valley Federal Chairman Joseph R. Biafora. The board is likely to meet sometime next week, Fleming said.

Citadel’s opening offer was considerably below Valley Federal’s current market value. Valley Federal’s common stock closed Thursday at $20.75 a share, up 75 cents, in national over-the-counter trading. Citadel’s stock fell 50 cents a share, to $36, on the American Stock Exchange.

In a telephone interview, Taylor termed the $18.50-a-share price “a starting point,” and said Citadel has an obligation to its stockholders not to pay more for Valley Federal until it has had a chance to examine the S&L;’s confidential financial data. “With the unknowns, that’s as far as we’re willing to go,” he said.

Valley Federal is the biggest financial institution in the San Fernando Valley. Citadel’s offer for all of the stock is subject to several conditions, including its ability to review Valley Federal’s confidential books, a step known as “due diligence.”

Taylor wrote in his letter that if Citadel is allowed to conduct a due diligence review, it “is willing to negotiate a possibly higher price” for Valley Federal. In addition, Citadel, with $3.8 billion in assets and 30 offices, is prepared to offer $1 a share more “than any written bona fide firm cash offer” that Valley Federal might get in the next 10 business days, Taylor wrote.

Haims, the bank analyst, suggested that regardless of Valley Federal’s current stock price Citadel is unwilling to offer more than $18.50 a share until Home Federal, or some other S&L;, tips its hand by making a bid.

“What’s holding this stock at this level is the fact that the stock is in play, with the anticipation that Home Federal’s going to come forward at a price 20% over current market value,” Haims said. “If that bid does not surface, then this stock could easily fall to $18.50 or even lower.”

Even if a bidding war does erupt, the final outcome will be decided by the Federal Home Loan Bank Board, which regulates the nation’s thrifts and approves any changes in their control.