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Deal would make Wachovia biggest bank in Southeast

By Rick Rothacker
Knight Ridder Newspapers

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The Charlotte-based bank becomes the largest bank in deposits in the Southeast with more than 18 percent market share, leapfrogging rival Bank of America in an eight-state territory. The deal also speeds up the expansion of the nation's No. 4 bank in assets into the hot Texas market, gaining 64 locations before it begins its own branch-building campaign.

"We don't think anyone can come close to replicating the franchise we are creating," said Wachovia's Ken Thompson, who will remain chairman, chief executive and president of the combined company. The banks will slash a total of 4,300 jobs in both franchises, at least a quarter of them through normal turnover, Thompson said. Where and when the cuts will come hasn't been determined.

The combined bank, which would be based in Charlotte, would have 98,000 employees, 3,200 branches and 5,300 automated-teller machines in 15 states from Connecticut to Texas. Wachovia, now in 11 states and the District of Columbia, plans to close as many as 150 branches in markets where both banks have offices.

Florida and Georgia were expected to bear the brunt of the closings, although there is overlap in the Carolinas.

The deal is the latest in a series of bank mergers sparked by Bank of America's agreement last year to buy FleetBoston Financial.

Observers have been waiting for Wachovia to make a move to become a bigger national player, but some analysts were underwhelmed by yesterday's maneuver.

"It seems a bit peculiar," said Octavio Marenzi, chief executive officer of Celent, a financial services-consulting firm. "It's not a deal that makes a tremendous amount of difference for a bank the size of Wachovia."

Thompson has said repeatedly that he is interested in expanding in the South and West, but only at a price that benefited shareholders. Thompson, 53, said he had held "hot and cold" negotiations with SouthTrust CEO Wallace Malone, 67, for the past eight months and sealed the deal over the weekend.

Malone, who in 1972 helped found the bank, will become vice chairman of the combined company.

As of Friday's close, Wachovia was paying a 20 percent premium for SouthTrust, exchanging .89 of its shares for each SouthTrust share.
 
"We think Wachovia overpaid for SouthTrust," said Jefferson Harralson, analyst with Keefe Bruyette & Woods, who owns no bank shares but whose firm has sought or conducted business with the banks. "But if you're going to overpay, SouthTrust is a good franchise."

He noted that SouthTrust has long been a dependable profit-maker and is known for a low-risk loan portfolio. But he said the cost-cutting, which Wachovia projects at $255 million after taxes, will be arduous to make the deal work.

Wachovia said the merger will cost shareholders 15 cents per share in 2005 and 4 cents per share in 2006. It will start adding to earnings in 2007, bringing in an extra 2 cents per share.

Investors sent Wachovia shares falling yesterday more than 4 percent to $45.02, while SouthTrust shares climbed $4.57, or more than 13 percent, to $39.37.

In buying SouthTrust, Wachovia gets more territory in some of the nation's best markets.

Analysts said the bank had taken another step toward becoming a national franchise but will still have to look at other deals to join the next echelon of banks. The top three — Citigroup, Bank of America, J.P. Morgan Chase — will each have more than $1 trillion in assets thanks to their latest deals. No. 5 Wells Fargo of San Francisco is often mentioned as an ideal partner, and Citigroup would be big enough to acquire Wachovia, analysts said.