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Wachovia May Buy SouthTrust

The purchase of Alabama's biggest lender could be worth at least $11.5 billion.

June 21, 2004|From Bloomberg News

Wachovia Corp., the fourth-biggest U.S. bank, may buy SouthTrust Corp., Alabama's biggest lender, in a deal worth at least $11.5 billion, people familiar with the matter said Sunday.

Talks between the two banks continued through the weekend, according to the people, who asked not to be identified.

Based on the average premium that acquirers paid in purchasing regional banks worth more than $3 billion since the beginning of 2002, SouthTrust could fetch as much as $14 billion, according to data compiled by Bloomberg News.

Birmingham, Ala.-based SouthTrust has $52.7 billion in assets and 712 consumer-banking offices. "It would give Wachovia a nice deposit base," said Hilary Hayes, who helps manage about $4 billion at Victory SBSF Capital Management in New York and doesn't hold shares of either bank. "SouthTrust's overall franchise is in fairly robust growth markets and they've been one of the few banks over the last few quarters to show growth in the commercial and industrial loans."

Wachovia spokeswoman Mary Eshet and SouthTrust spokeswoman Nannette Sheaffer declined to comment.

Acquirers paid a 22% premium for the regional banks purchased since Jan. 1, 2002, the Bloomberg data show. That would give SouthTrust shareholders about $42.50 a share.

Because SouthTrust's price-to-earnings ratio of 16.3 is higher than Wachovia's, which is 13.2, an acquisition would cut Wachovia's earnings per share.

The more that Wachovia pays for SouthTrust, the deeper the earnings will be cut.

In February, Charlotte, N.C.-based Wachovia said it would open 250 consumer-banking offices in the next six years in Texas, including in Dallas, Fort Worth, Houston, Austin and San Antonio.

SouthTrust holds about 1% of the deposits in Texas with 57 offices, according to Federal Deposit Insurance Corp. data. J.P. Morgan Chase & Co. and Bank of America Corp. are the biggest banks in Texas.

"Parts of the country we like are fast-growing," said Wachovia Chief Executive G. Kennedy Thompson after the company's annual shareholder meeting in April. "That sort of says West and South. Texas is a place where we would do acquisitions."

Buying SouthTrust, which is the No. 4 bank in Florida, would add to Wachovia's position in that state. Wachovia is the second-biggest bank in Florida behind Bank of America, and combining with SouthTrust would give it about $50 billion in deposits, according to FDIC data. Bank of America has about $53 billion in the state, the data show. SouthTrust also would make Wachovia the No. 2 bank in Alabama by deposits.

SouthTrust is headed by Wallace D. Malone Jr., 67, who has been chairman and chief executive since 1981. The company has four main business units: commercial banking; retail banking; asset management; and capital management, which includes brokerage, trust, investment and insurance services.

Malone controls about 4.9 million shares, or 1.5% of the company's stock.

SouthTrust shares have gained 22% in the last year, giving the company a market value of about $11.5 billion. The shares rose 9 cents to $34.80 on Friday on Nasdaq.

Wachovia's Thompson led First Union Corp.'s $14.9-billion purchase of Wachovia in 2001 and the acquisition in July of Prudential Financial Inc.'s brokerage business, which created the third-biggest U.S. brokerage. First Union took Winston-Salem, N.C.-based Wachovia's name and kept its headquarters in Charlotte.

"We don't need to be bigger, but we would like to be bigger because it means more customers," Thompson said after the April meeting.

Wachovia has $411 billion in assets and about 2,600 consumer offices in 11 states and Washington, D.C. Citigroup Inc. is the biggest U.S. bank, followed by Bank of America and J.P. Morgan Chase.

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