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EXHIBIT 7
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Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1325
212-449-1000
March 5, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
We understand that it is proposed that Washington Mutual, Inc. ("Washington
Mutual") and Great Western Financial Corporation ("Great Western") are proposing
to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to
which Great Western will be merged with and into Washington Mutual in a
transaction (the "Merger") in which each outstanding share of Great Western's
common stock, par value $1.00 per share (the "Great Western Shares"), will be
converted into the right to receive 0.90 shares (the "Exchange Ratio") of the
common stock, no par value, of Washington Mutual (the "Washington Mutual
Shares"), all as set forth more fully in the Agreement.
You have asked us whether, in our opinion, the proposed Exchange Ratio in
the Merger is fair to the shareholders of Great Western from a financial point
of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December 31,
1995, a draft of Great Western's Annual Report on Form 10-K for the period
ended December 31, 1996, and Great Western's Quarterly Reports on Form 10-Q
and the related unaudited financial information for the quarterly periods
ending March 31, 1996, June 30, 1996 and September 30, 1996;
(2) Reviewed Washington Mutual's Annual Reports on Form 10-K and
related audited financial information for the two fiscal years ended
December 31, 1995, a draft of Washington Mutual's Annual Report on Form
10-K for the period ended December 31, 1996, Washington Mutual's Quarterly
Reports on Form 10-Q and the related unaudited financial information for
the quarterly periods ending March 31, 1996, June 30, 1996 and September
30, 1996, and Annual Reports to the FDIC on Form S-2 of Washington Mutual
Savings Bank, predecessor to Washington Mutual for the three years ended
December 31, 1993;
(3) Reviewed certain limited financial information, including
financial forecasts, relating to the respective business, earnings, assets,
liabilities and prospects of Great Western and Washington Mutual furnished
to us by senior management of Great Western and Washington Mutual;
(4) Conducted certain discussions with members of senior management of
Great Western and Washington Mutual concerning respective financial
condition, businesses, earnings, assets, liabilities, operations,
regulatory condition, financial forecasts, contingencies and prospects, of
Great Western and
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Washington Mutual and their respective view as to the future financial
performance of Great Western, Washington Mutual and the combined entity, as
the case may be, following the Merger;
(5) Reviewed the historical market prices and trading activity for the
Great Western Shares and the Washington Mutual Shares and compared them
with that of certain publicly traded companies which we deemed to be
relevant;
(6) Compared the respective results of operations of Great Western and
Washington Mutual with those of certain publicly traded companies which we
deemed to be relevant;
(7) Compared the proposed financial terms of the Merger contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Reviewed the amount and timing of the projected cost savings,
related expenses and revenue enhancements expected to result from the
Merger (the "Expected Synergies"), as presented by the senior management of
Washington Mutual;
(9) Considered, based upon information provided by the senior
management of Great Western and Washington Mutual, the pro forma impact of
the transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of
Washington Mutual;
(10) Reviewed a draft of the Agreement and Plan of Merger and related
agreements; and
(11) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, with your consent, we have assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by Great Western and Washington Mutual, including that
contemplated in the numbered items above, and we have not assumed responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Great Western or Washington Mutual or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We are not experts in the
evaluation of allowances for loan losses and, with your consent, we have not
made an independent evaluation of the adequacy of the allowance for loan losses
of Great Western or Washington Mutual, nor have we reviewed any individual
credit files relating to Washington Mutual or Great Western and, with your
consent, we have assumed that the aggregate allowance for loan losses for each
of Washington Mutual and Great Western is adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, we have
not conducted any physical inspection of the properties or facilities of Great
Western or Washington Mutual. With your consent, we have also assumed and relied
upon the senior management of Great Western and Washington Mutual as to the
reasonableness and achievability of the financial forecasts (and the assumptions
and bases therefor) provided to, and discussed with, us. In that regard, we have
assumed and relied with your consent that such forecasts, including without
limitation, financial forecasts, evaluations of contingencies. Expected
Synergies and projections regarding underperforming and non-performing assets,
net charge-offs, adequacy of reserves, and future economic conditions reflect
the best currently available estimates, allocations and judgments of the senior
management of Great Western and Washington Mutual as to the future financial
performance of Great Western, Washington Mutual or the combined entity, as the
case may be. Our opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
We have been retained by the Board of Directors of Great Western as an
independent contractor to act as financial advisor to Great Western with respect
to the Merger Proposal and will receive a fee for our services.
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We have, in the past, provided financial advisory and financing services to
Great Western and Washington Mutual and received customary fees for the
rendering of such services, including acting as lead underwriter for a 14.6
million share secondary public offering of Washington Mutual common stock in
January 1997. In addition, in the ordinary course of our securities business, we
may actively trade debt and/or equity securities of Great Western and Washington
Mutual and their respective affiliates for our own account and the accounts of
our customers, and we therefore may from time to time hold a long or short
position in such securities. In addition, certain affiliates of Merrill Lynch &
Co. act as investment advisors to publicly held mutual funds which owned, as of
March 4, 1997, approximately 5.1 million shares of Great Western's Common Stock
and approximately 0.5 million shares of Washington Mutual's Common Stock.
Our opinion is directed to the Board of Directors of Great Western and does
not constitute a recommendation to any shareholder of Great Western as to how
such shareholder should vote at any shareholder meeting of Great Western held in
connection with the Merger Proposal. This opinion is directed only to the
proposed Exchange Ratio and is for the confidential use of the Board of
Directors of Great Western and may not be reproduced, summarized, described or
referred to or given to any other person without our consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the shareholders of Great
Western from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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