What's Next, Wachovia?

T he merger of Wachovia and First Union continues to have a price - in both dollars and sense.

The "sense," in this case, is the sense of customers that something is amiss. That feeling was best expressed by Laurie Buntain, Co-Portfolio Manager of the $776 million Sife Trust Fund, which holds Wachovia and SunTrust stock.

"I hope it means now that First Union and Wachovia can go forward, begin their integration and stop irking their customers," she said.

Buntain said "squabbling" over whether SunTrust's or First Union's offer for Wachovia was superior distracted customers of all three banks. "Ultimately, that affects revenues," she said. "You can't distract your customers to the point where they go somewhere else."

Finally, Wachovia and First Union can indeed go forward, but the cost keeps going up. When Wachovia announced on Aug. 3, 2001 that its shareholders had approved the merger with First Union by a significant margin1, the price was set at $14.3 billion. But Chris Burritt of Bloomberg L.P. reported that figure is now closer to $14.9 billion, and the vote was approved by 60 percent of Wachovia's shareholders. Of the 203 million outstanding shares, Wachovia shareholders voted 122 million in favor of its acquisition by Charlotte-based First Union.

Another result of the merger: It was announced earlier this month that Bank One Corp. will sell back to Wachovia approximately $1.3 billion of consumer credit card receivables of customers who also have a Wachovia retail banking relationship. Not affected is Bank One's purchase of Wachovia's primary portfolio of $6.2 billion in receivables of cardmembers who are not customers of Wachovia's retail bank.

First Union and Wachovia have been working on the integration of the two banks since April, when they announced the transaction that at that time would create the largest financial holding company in the southeastern U.S. and the fourth largest in the nation2.

The combined company, which is now known as the Wachovia Corp., offers its millions of customers corporate banking, retail banking, asset and wealth management, capital markets and securities brokerage services and products.

"This is a defining moment for Wachovia and First Union, providing the opportunity to create one of the finest companies in the world," said L.M. Baker Jr., Chairman of Wachovia. "We look forward to leveraging combined strengths to realize the potential of our new company and to build sustained value for our shareholders, customers, employees and communities."

As a result of the merger, Wachovia shareholders will receive 2.0 shares of the new corporation for each share of Wachovia stock they own. In addition, at their election they are entitled to receive either a $0.48 per share cash payment or two Dividend Equalization Preferred Shares (DEPS) for each share of former Wachovia common stock they possess.

"The closing of the merger marks the culmination of months of hard work," said G. Kennedy Thompson, Wachovia's Chief Executive Officer. "We are creating a powerful new force in the industry with the size and scope to offer the very best in financial services to our customers. Our immediate focus is on the thoughtful, deliberate integration of our two companies in a way that best serves our customers, presents new opportunities for our employees and continues to grow our businesses."

First Union has 47 branches in South Carolina, and Wachovia has 111. First Union officials told Wachovia shareholders earlier this summer they wouldn't repeat their mistakes in the Corestates3 acquisition if the shareholders would support First Union's proposed acquisition.

Even after winning support from Wachovia shareholders, First Union officials are stressing that they will proceed slowly and methodically in the integration of First Union and Wachovia. Officials of both banks are determining which branches will need to be closed, given that 325 Wachovia branches are within one mile of a First Union branch.

The new corporation will begin closing branches as early as next summer, starting in South Carolina and proceeding over the next 18 months across the bank's 11-state East Coast territory, from Florida to Connecticut. The integration, including the transfer of customer accounts to the new bank, is scheduled for completion by the end of 2003, said David Carroll, First Union's Executive Vice President in charge of merger integration.

Wachovia has leading market share in numerous high-growth markets, with an extensive product offering. The corporation is the No. 1 retail bank in the East, among the top three in small business banking, a leading national brokerage and fund manager, an investment bank focused on growth companies and a well-positioned corporate bank.

Wachovia has total deposits of $181 billion, assets under management of $221 billion and mutual fund assets of $101 billion. The company's 19 million customers (3.1 million of them online) are served by 88,000 employees, 2,900 banking branches, 4,800 ATMs, nearly 600 brokerage offices and 8,300 registered representatives.

As an immediate benefit of the merger, Wachovia and First Union bank customers are now able to use their current ATM cards and PIN numbers at nearly 4,800 Wachovia and First Union ATMs around the country to make cash withdrawals or checking account balances without incurring a fee.

To commemorate the formation of the new corporation and the first day of trading of the combined company's shares under the WB symbol, Baker and Thompson rang the opening bell at the New York Stock Exchange on Sept. 4, 2001.

1 See "It's All Over but the Shouting" in Aug. 27, 2001 issue (01:08:02) of The Green Sheet.

2 Total assets of approximately $322 billion and a market capitalization of $46 billion.

3 First Union stumbled in its 1998 acquisition of Corestates Financial in the Philadelphia area.