"We believe A.G. Edwards is the premier brokerage company in the United States," Ken Thompson, Wachovia's chairman and chief executive, told analysts on a morning conference call. "When you combine A.G. Edwards with Wachovia Securities, we truly have an endgame player in the brokerage business."
The combined brokerage unit will operate as Wachovia Securities, headquartered in St. Louis, and will have more than 3,300 brokerage locations nationwide, more than $1.1 trillion in client assets and nearly 15,000 financial advisers.
Other A.G. Edwards businesses, including research, underwriting, investment banking, mutual funds and trust, will be consolidated into Wachovia's existing operating lines.
Wachovia Corp. (WB) said A.G. Edwards shareholders would get 0.9844 Wachovia shares and $35.80 in cash for each A.G. Edwards share held. That offer values A.G. Edwards Inc. at $89.50 per share based on Wednesday's closing prices, a 16 percent premium.
"The long-term growth opportunities of the brokerage industry are extremely compelling to Wachovia, and we have long expressed our interest in growing this business both organically and through acquisition," Thompson said.
Wachovia shares fell 25 cents to $54.30 in premarket trading. A.G. Edwards shares were up $10.75, or nearly 14 percent, to $87.90.
The deal continues a string of high-profile acquisitions engineered by Charlotte, N.C.-based Wachovia, including First Union, Prudential Securities and, most recently, Golden West Financial Corp. That $24.2 billion deal, which closed in October, expanded Wachovia's mortgage business, an industry that had slowed at the time of the buyout, and gave the company a foothold in California, a state where it had just a handful of branch offices.
By adding A.G. Edwards (AGE), Wachovia will gain thousands of brokerage customers they can target for traditional banking products, including mortgages, deposit accounts, auto loans and credit card services.
"The demand for our clients to have one-stop financial services ... this is critical as we move into the future," said A.G. Edwards Chairman and CEO Robert Bagby.
The transaction, which is expected to close in the fourth quarter of 2007, with full integration by early 2009, makes Wachovia the second-largest American retail brokerage, after Merrill Lynch & Co. Inc., and propels Wachovia past Citigroup Inc.'s Smith Barney.
"While Wachovia has made strides to be among the top retail brokerages with its acquisition of the Prudential brokerage operation, it was never considered in the big leagues with Merrill Lynch, Smith Barney & Morgan Stanley," said Robert Ellis, senior analyst at Celent, a Boston-based financial research and consulting firm. "So, like most acquisitions, this one has an aspect of ego attached."
Wachovia said Daniel J. Ludeman, currently president and chief executive of its Wachovia Securities unit, will keep those roles at the combined brokerage unit. Bagby will be chairman of the brokerage.