Wells Fargo and Norwest, "Merger of Equals" (A)

By Victoria Chang, Charles O'Reilly III, Jeffrey Pfeffer
2004 | Case No. HR26A
On June 8, 1998, California-based Wells Fargo and Minneapolis banking company, Norwest announced a “merger of equals” in a stock deal valued at $34 billion and one that created the Western Hemisphere’s most extensive and diversified financial services network. The deal echoed the recent consolidation trend in banking such as Chase Manhattan’s merger with Chemical Banking in 1996 and Manufacturers Hanover in 1991. The Wells-Norwest combined company would have $191 billion in assets, more than 90,000 employees, approximately 20 million customers, and 5,777 financial services “stores” (mortgage, consumer finance, or banking stores) in 50 states, Canada, the Caribbean, Latin America, and internationally. The new combined company would be called Wells Fargo & Company and would be the sixth largest bank in the United States, as well have the largest supermarket branch network and the largest Internet bank of any U.S. bank. Prior to the merger announcement, Wells Fargo was widely viewed as one of the prize candidates left in the rapidly consolidating banking industry. It was the major franchise remaining in the California market and the second-largest holder of customer deposits in the state. On the other side, Norwest was a Minneapolis-based bank that had been one of the industry’s top-performing banks in the decade and one of the more successful U.S. regional banks. It was the nation’s largest mortgage underwriter and also a major player in consumer finance. Prior to the merger announcement, Wells Fargo ranked 10th and Norwest ranked 11th in the country in the banking industry. Norwest stated that the rationale for the merger was to increase cross-selling opportunities to attract new customers and earn more of their business; service existing customers better by providing more valuable advice, greater convenience, and better products; allow team members to grow professionally and personally; help communities to succeed; and deliver outstanding returns to shareholders. The vision of the new company was to “satisfy all our customers financial needs and help them become financially successful.” With the merger, Paul Hazen, chairman and CEO of Wells Fargo at the time became chairman of the new organization. Richard Kovacevich, chairman and CEO of Norwest, became president and CEO of the new organization. Kovacevich said: “This merger of equals will bring together two high performing companies with complementary businesses, products, technology, markets, and customers.” Hazen shared Kovacevich’s enthusiasm for the merger: “By sharing successful best practices across our two companies, we can take advantage of the unique strengths of both organizations to serve our customers better and deliver even greater shareholder value. This merger will result in a dynamic new organization that is geographically diverse and focused on delivering long term benefits for our stockholders, customers, team members, and communities.” Despite Kovacevich and Hazen’s enthusiasm for the merger, they had a series of potential barriers to overcome. First, Wells Fargo and Norwest had contrasting cultures. For example, Norwest was known for customer service and a superior sales culture (branches were called stores and bankers, salespeople). Wells Fargo was a leader in online banking and technology with a focus on efficiency. Second, in 1998, Wells Fargo was still in the process of overcoming a merger with First Interstate that was widely considered a miserable failure. The merger had been a hostile takeover by Wells Fargo that had been rushed and managed ineffectively. Finally, many industry analysts viewed the Wells-Norwest merger with much caution. Some boosted estimates and others did not, but most emphasized concern over integration of the two different cultures, especially given the plethora of research that pointed to the widespread failures of mergers and acquisitions. Given such barriers, Kovacevich and his team wondered how they could overcome such issues through an optimal integration strategy and effective execution towards that plan.
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