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Wachovia buyback, merger fight coincide
Compiled from Times wires
© St. Petersburg Times, Wachovia Corp. over the past two months has bought back roughly 4-million of its shares, often paying more for the stock than proposed merger partner First Union Corp. is offering. The shares were purchased in April, May and the first few days of June, the Charlotte Observer reported. That is twice the number of shares the Winston-Salem, N.C., bank repurchased in all of last year. The bank's board approved the buybacks long ago, and the bank says the timing of its purchases -- during its fight to merge with First Union and stave off a hostile bid from SunTrust Banks Inc. of Atlanta -- is coincidence. While the purchases by themselves do not affect the merger fight, they may have helped keep Wachovia's price near its 52-week high. First Union is offering two of its shares for each of Wachovia's, making its offer worth $13.46-billion, or $66.46 per share as of Monday. Wachovia closed at $67.50, unchanged. "You buy back stock at whatever the market is, but if you're buying back stock higher than the merger partner is willing to pay, it's a question of (whether that is) an economic use of capital," said Marni Pont O'Doherty, analyst with Keefe, Bruyette & Woods. SunTrust is offering 1.081 shares of its stock for each of Wachovia's, an offer now worth $13.49-billion. Before Monday's close, SunTrust's stock price had fallen enough that its offer for the first time slipped below First Union's. "If you're looking at it for the here and now, SunTrust doesn't have that much to offer anymore," said Bryan Paul, who helps manage $60-billion at PNC Advisors in Philadelphia, which owns shares of all three banks. First Union closed the gap with SunTrust's offer because its shares have risen 11 percent since the day before SunTrust's May 14 bid was announced. In the same period, SunTrust's shares have fallen 5 percent. SunTrust chief executive L. Phillip Humann said during a recent investor presentation that Wachovia investors would support his bank's bid if it had at least a 6 percent to 7 percent price advantage over First Union. "In the spirit of being brutally honest here, everyone wishes that the spread were greater," Humann told investors May 30. Wachovia now faces few obstacles in its campaign to win shareholder support for the First Union purchase. Wachovia last week mailed pamphlets -- decorated with a photograph of an adult hand holding a child's -- urging shareholders to back the First Union deal at its Aug. 3 annual meeting. Wachovia spokesman Jay Reed would not discuss the volume of the company's stock repurchases, which the bank isn't required to disclose until after June 30, the quarter's end. But he defended recent buybacks by saying, "The share price was favorable and beat our internal rate of return for this kind of investment." The past two months have seen Wachovia's stock price hit a high of $69.50, within striking distance of its 52-week high of $70.88. As of March 31, Wachovia's board had authorized the bank to repurchase about 13.2-million shares, in part to cover the amount of stock the bank issued to buy Florida's Republic Security Financial Corp. Banks typically want to keep the number of shares outstanding constant after such a deal. That way, earnings per share don't drop because the bank is forced to spread earnings across a wider pool of shares. Wachovia didn't buy back any stock in the first quarter because it was in a "blackout" period before the Republic purchase closed. That's a Securities and Exchange Commission-mandated ban on share repurchases. So the heavy buying has come since April 1. The bank will hit another blackout sometime in the next two weeks because it will be close to releasing second-quarter earnings. - Information from the Charlotte Observer and Bloomberg News was used in this report.
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