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Wachovia agrees to buy A.G. Edwards

The $6.8-billion deal would form the No. 2 retail brokerage in the U.S., behind Merrill.

June 01, 2007|From Bloomberg News

Banking giant Wachovia Corp. said Thursday that it had agreed to buy A.G. Edwards Inc., a 120-year-old St. Louis-based securities firm, for $6.8 billion in a deal that would create the second-largest U.S. brokerage firm.

St. Louis-based A.G. Edwards, founded by a friend of President Lincoln, has fallen behind in the competition for stock trades as investors have turned to Goldman Sachs Group Inc., UBS, Merrill Lynch & Co. and Morgan Stanley.

"A.G. Edwards was a special firm, Midwest-oriented, fiercely proud of that, but we are in a different era," said Bruce Foerster, president of Miami-based South Beach Capital Markets.

A.G. Edwards employs 6,618 financial advisors in 742 U.S. offices and two European locations. It has about $374 billion in client assets. Wachovia Securities currently has 8,166 brokers and $773 billion in client assets.

With 14,800 financial advisors, the combined company would rank second only to Merrill.

"We knew we needed scale. We knew we needed additional products as financial services continue to migrate toward a global platform," A.G. Edwards Chief Executive Robert Bagby said during a conference call. "We could not provide that at A.G. Edwards. We didn't have the capital base."

Wachovia, based in Charlotte, N.C., would pay A.G. Edwards holders $89.50 a share in cash and stock, 16% more than A.G. Edwards' closing price Wednesday.

After the deal was announced, A.G. Edwards shares jumped $11.01, or 14%, to $88.16. Shares of Wachovia fell 36 cents to $54.19.

Wachovia said the combination would generate about $395 million in annual after-tax cost savings, some of which would come from cutting jobs and closing offices.

The bank plans to eliminate as many as 4,000 employees who don't have full Securities and Exchange Commission qualifications, or about a quarter of the companies' combined total, David Carroll, head of Wachovia's capital management unit, said in an interview.

Wachovia will also close about 230 brokerage offices over a three-year period, he said.

Wachovia CEO Kennedy Thompson expanded the company's reach into western states in October with the bank's largest takeover, a $24.2-billion acquisition of Golden West Financial Corp. That deal doubled the size of Wachovia's interest-rate-sensitive mortgage portfolio.

The A.G. Edwards purchase would help Thompson boost revenue from more predictable fee income and sell more retail bank products and investment banking services to A.G. Edwards' brokerage clients.

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