- The Washington Times - Monday, June 21, 2004

CHARLOTTE, N.C. (AP) — Wachovia Corp. jump-started its entry into the lucrative Texas markets of Houston, Dallas and San Antonio with a $13.7 billion deal to buy regional banking power SouthTrust Corp.

“We just increased the growth rate of a growth company,” Wachovia Chairman and Chief Executive Officer Ken Thompson said after announcing the deal that would create the Southeast’s largest bank.

Asked whether the 20 percent premium Wachovia was paying for SouthTrust was too much, Mr. Thompson said it was “definitely worth the price” and would benefit shareholders, customers and clients if approved by shareholders and regulators.

“We believe we are creating an unbeatable combination in the heart of our Southern franchise,” Mr. Thompson told banking analysts during a conference call. “We believe no one can touch us.”

William Bogner, who teaches management at Georgia State University, said Wachovia wants to start building its Texas franchise sooner rather than later.

“They felt like they needed to get into Texas quickly,” he said.

“Their original strategy was to build internally,” he said. “But in any competitive environment, unless there are no strong rivals to retaliate against you, it can be too slow of a process and it exposes you to retaliation.”

Wachovia, based in Charlotte, N.C., would solidify its position as the nation’s fourth-largest bank through the deal with an expanded $464 billion in assets.

While it had the been doing business primarily in 11 Eastern states and the District of Columbia, the SouthTrust deal accelerates Wachovia’s plans to move into Texas. Wachovia announced earlier this year that it intends to open 256 branches in Texas by the end of the decade.

Wachovia currently does not have any bank branches in Texas but a bank spokeswoman said the bank’s plan is to open four branches by the end of 2004.

SouthTrust, a Birmingham, Ala., company with $52.7 billion in assets and 712 offices in nine Southern states, has 60 branches in Texas and was preparing to build at least 30 more.

Mr. Thompson said Wachovia will target the Dallas-Fort Worth, Houston, Austin and San Antonio areas, which account for 60 percent of the state’s population and the lion’s share of the state’s wealth.

“It’s one of the wealthiest and fastest-growing markets in the country,” Mr. Thompson said in an interview.

The deal calls for Wachovia to exchange 0.89 shares of its common stock for each share of SouthTrust. The companies valued the deal at $13.7 billion, based on Wachovia’s closing stock price of $45.02 yesterday.

SouthTrust shares rose $4.57, or 13.13 percent, to close on the Nasdaq Stock Market at $39.37. Wachovia shares fell $1.98, or 4.21 percent, on the New York Stock Exchange.

Mr. Thompson said the bank plans to close between 130 and 150 bank branches and eliminate about 4,300 jobs at the bank after the deal is completed. He said many of the cuts will be absorbed through attrition.

SouthTrust Chairman and Chief Executive Officer Wallace Malone cited the “cultural compatibility between both banks and their management teams.” And he predicted that the merger will prove to be lucrative to shareholders of both banks.

“I personally feel Wachovia’s stock price is undervalued,” he said during the conference call. “I also feel SouthTrust can bring a lot to the table in reaching Wachovia’s potential.”

Mr. Thompson had told shareholders at Wachovia’s annual meeting in April that he was not feeling pressure to make a big deal after mega-mergers between Bank of America and Fleet and J.P. Morgan Chase & Co. and Bank One.

“We will not abandon our discipline. There’s no need to do a deal, and we would not burden our shareholders with a bad one,” he said.

The companies said they expect the integration to take 15 months, a process that is likely to cost $431 million after taxes. After that initial period, the transaction should generate $255 million in annual after-tax cost reductions.

Mr. Malone will become vice chairman of Wachovia once the transaction is complete. He and two other members of SouthTrust’s board of directors will join the board of Wachovia.

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