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Pour the popcorn: Wachovia drama worth watching

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By ROBERT TRIGAUX

© St. Petersburg Times, published May 16, 2001


Ahostile bank takeover -- as rare as a steady downpour in Tampa Bay -- is upon us.

Atlanta's SunTrust Banks shucked its southern reserve this week and is out to snatch North Carolina's Wachovia Corp. from the arms of the larger First Union Corp.

In an industry where hostile deals are shunned and rarely successful, this takeover spat has potential. Business watchers -- and consumers already twitching from years of too many bank mergers -- should sit back. Let's enjoy some great corporate drama and Oscar-winning executive posturing over the coming weeks.

Hostile bankers? Somebody ought to make a movie.

From Wachovia's point of view, this tale would be titled Titanic. How dare SunTrust try and sink our plans to be acquired by First Union?

From First Union's vantage point, this flick is The Sting. Who awakened slumbering SunTrust in time to bet against First Union's cheap deal for Wachovia?

From SunTrust's corner, the bank could star in Revenge of the Nerds. Five months ago, SunTrust played by bankers' naive rules when it tried to buy Wachovia, only to be rebuffed and then snookered when First Union cut a cheaper deal a few months later. It's payback time.

If SunTrust, the longstanding banker to Coca-Cola, succeeds in buying Winston-Salem, N.C.-based Wachovia, banker to tobacco giant R.J. Reynolds, analysts have dubbed their combination "Coke and Smoke."

If First Union somehow perseveres without raising its offer, the deal will be known to Wachovia investors as "Joke and Smoke."

Wake up, bankers. A bidding competition. This is how the market is supposed to work!

Before handicapping this contest, let's catch up on Tuesday's news:

SUNTRUST: The company's initial bid for Wachovia, valued at $14.7-billion, is 15 percent higher than First Union's original $12.7-billion offer. (The values will vary as company stock prices rise and fall.)

SunTrust is launching a PR campaign to convince Wachovia shareholders that its offer is not hostile -- just a follow-up to December's offer. SunTrust says its proposal is not only richer but will mean a better fit of corporate cultures, fewer layoffs and a resulting stock (SunTrust) that has outperformed First Union for years.

If SunTrust does thwart the First Union deal, it may have to pay a $440-million breakup fee, but that won't be a deal breaker. SunTrust has asked for a meeting with Wachovia's board of directors this week to discuss its proposal.

FIRST UNION: The Charlotte, N.C., company insists its proposed merger remains "clearly superior for Wachovia's shareholders." Most bank analysts disagree and back SunTrust's superior financial offer. First Union's pitch -- that it will perform better in the future than it has in the recent past -- sounds good but raises aquestion. Where the beef?

First Union argues, correctly, that hostile acquisitions of large U.S. banks rarely are successful. And some analysts say First Union, while a weaker performer than SunTrust, is significantly bigger and could ultimately leverage its size to outduel SunTrust.

If that happens, First Union may well win Wachovia. But the high cost of the exercise may do little to help the combined bank in the long run.

WACHOVIA: As a point of honor, it still defends its proposed sale to First Union as the better deal. But Wachovia chief executive Bud Baker and Wachovia's board could face some heat for their apparent snubbing of SunTrust's first offer in December, their quick embrace of First Union's clearly low-ball takeover price, and this week's initial dismissal of SunTrust's bid.

Analysts remain confounded by Wachovia's willingness to sell out for so little. Was First Union's willingness to change its name to Wachovia worth that much to its investors?

If Wachovia does not show it is representing shareholders' interest, Baker and his board will soon be neck deep in lawsuits. (Baker, perhaps mercifully, is on vacation in Italy.)

Each of the three banks has a lot to lose.

If SunTrust loses Wachovia, the Atlanta bank will miss a once-in-a-corporate-lifetime opportunity to combine with a bank that's almost identical in conservative culture and a good geographic fit to blanket the Southeast.

If First Union loses out, the bank will suffer yet another blow for failing to deliver. First Union shocked analysts by proposing a Wachovia deal while in the middle of its own troubled turnaround. First Union was happy to dump its own name in favor of the lesser-known Wachovia, knowing full well the First Union brand has become tainted on Wall Street following years of weak earnings and poorly executed mergers.

Tuesday, both bidders sought to cool shareholder anticipation of a heated auction.

SunTrust CEO Phillip Humann says he doesn't expect a bidding war against First Union.

First Union CEO Ken Thompson insists there is no plan to increase its offer for Wachovia. He maintains his bank has a binding legal agreement with Wachovia.

Good one, Ken. Lawyers will punch more holes in this deal than Palm Beach County voters in their ballots.

In this banking movie, the plot's about to thicken.

- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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