Wachovia Pays Extra For SouthTrust
Wachovia said Monday it's acquiring SouthTrust, in a stock-for-stock deal valued at $14.3 billion, paying a rich 20 percent premium to expand its reach in the fast-growing southeast and confirming expectations of further consolidation in the banking industry.
Terms call for Wachovia to swap 0.89 share of common stock for each outstanding SouthTrust common share. Based on Wachovia's closing price Friday of $47, the deal values SouthTrust at $41.83 per share, a 20 percent premium to its Friday closing price.
"This is above the average of recent transactions," Lehman Brothers analyst Jason Goldberg wrote in a research report Monday morning.
In pre-market trading Monday, shares of SouthTrust rose 11% to $38.77.
"SouthTrust is one of the nation's best-performing, highest-quality banks," said Wachovia CEO Ken Thompson in a statement.
The deal, according to Charlotte, N.C.-based Wachovia, will contribute to its cash earnings within 24 months of closing, and within 30 months to operating earnings.
The two companies held talks through the weekend, according to media reports.
The deal is expected to give acquisition-minded Wachovia bigger exposure in the fast-growing banking market in the southern states and Texas.
"The purchase improves its (Wachovia's) position in Florida and Georgia, two relatively faster growing states, and puts it over a year ahead on its Texas expansion," Lehman's Goldberg wrote.
SouthTrust, based in Birmingham, Ala., has about 12,000 employees and operates 717 offices in Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas and Virginia.
SouthTrust has a market capitalization of approximately $11.4 billion.
Wachovia, with assets of $411 billion, is the fourth-largest bank in the United States, behind Citigroup, J.P. Morgan Chase & Co. and Bank of America.
Last week, the Federal Reserve approved the $58 billion merger of J.P. Morgan Chase and Bank One, which the companies said would take effect July 1. The Bank One brand no longer will exist. Financial services will operate under the J.P. Morgan brand and retail banking will operate under the Chase name.
The Fed vote is the last step in J.P. Morgan Chase's buyout of the sixth-largest U.S. bank, announced in January. Antitrust regulators approved the plan in March and shareholders approved in May. The deal will create a bank with more than $1 trillion in assets, second only to Citigroup.