- The Washington Times - Tuesday, April 17, 2001

First Union Corp. said yesterday it would buy Wachovia Corp. for about $13.4 billion in stock in a deal that creates the nation's fourth-biggest banking company from two North Carolina banking rivals.

The boards of both companies have approved the merger, in which First Union will pay about $13.4 billion in stock for Wachovia, with First Union offering two of its shares for each share of Wachovia. That's about $63.84 per share, based on prices at the close of trading Thursday. The financial markets were closed Friday.

The new bank, which will retain the name Wachovia Corp., will have total assets of $324 billion and a market capitalization of $45 billion, the companies said in a joint statement yesterday. The headquarters of the combined companies will be in Charlotte, N.C. It will have 19 million customers, 90,000 employees, and some 3,500 banking and brokerage branches.

The Department of Justice has to sign off on the deal, a process expected to take five to six months.

"Together, this new company will have what super-regional banks rarely have a full line of financial products, services and distribution capabilities, sufficient density of coverage and depth of talent to leverage its leading share in key growth markets, strong capital position and an experienced management team," said Leslie M. "Bud" Baker Jr., chairman and chief executive of Wachovia, during a conference call yesterday. "These strengths will enable superior growth rates in revenues and profits."

Mr. Baker will be the chairman of the new company, which will focus on corporate and retail banking and wealth management. First Union Chairman G. Kennedy Thompson will be president and CEO.

"We are in outstanding markets with outstanding customers, and we have a very good turf on which to play," Mr. Baker said.

Only Citigroup Inc., J.P. Morgan Chase Co. and Bank of America Corp. will be bigger than the new Wachovia.

The new company's integration should take about three years. Bank officials said they expect to cut about 7,000 jobs, roughly half of them through attrition. But no cuts will be made in the next year, and any subsequent branch closures will occur in locations within half a mile of each other, they said.

First Union currently has some 2,100 bank branches in the District of Columbia and in 11 states along the East Coast. Wachovia has more than 650 offices, mostly in Virginia, the Carolinas, Florida and Georgia.

The acquisition will require a one-time charge of $1.45 billion to cover costs like staff training, severance payments and real estate operations, officials said.

The deal is structured as a merger of equals, which usually happens when companies are of similar size and market capitalization. Not so in this case: Wachovia with $74 billion in assets is being integrated into First Union with $253 billion in assets. Each bank will get nine seats on the board.

"I think that's one of the more intriguing and more perplexing parts of this transaction," said David West, analyst with Davenport & Co. in Richmond. "It's curious why [Wachovia] did that rather than sell to another company and get a large premium."

Bert Ely, president of Ely & Co., an Alexandria, Va., research and consulting firm focusing on banking policy, said the deal is far from complete.

"This deal could fall apart for a variety of reasons," he said. "For one, the market might punish First Union … someone else might make a pass at Wachovia that's very possible. And at the same time, someone might make a pass on First Union and the deal could fall apart."

Mr. Ely said the announced purchase caught many industry players by surprise. He said both SunTrust and BB&T; have been potential bidders for Wachovia.

Analysts said it is not clear yet how the deal would affect consumers.

"It will be hard to say what the consumer impact will be until the deal is all done," said Mr. West. "They say they will go very slowly and won't close any branches for a year … clearly that indicated big concern for consumers."

The deal comes days after Bank One Corp. said it would buy Wachovia's $8 billion consumer credit-card portfolio for undisclosed terms. First Union, on the other hand, made some $30 billion in acquisitions over the past decade.

First Union and Wachovia have both been recently plagued by an increasing number of bad loans as the economy slows down. First Union yesterday said first-quarter profits fell 27 percent to $610 million. Wachovia is expected to report its earnings tomorrow.

At close of trading yesterday, shares of First Union were down 22 cents to $31.20 on the New York Stock Exchange. Wachovia closed at $62.05, up $1.85 from Thursday on the same exchange.

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