Last week, North Carolina-based banks Wachovia Corp. and First Union Corp. announced a merger, surprising many industry experts. The combined company will be the fourth-largest bank in the nation and the largest in the East.
The immediate impact of this deal on customers is expected to be minimal. According to spokespeople at both banks, the merger will take place gradually, and some customers might not even notice, since Wachovia will not even change its name.
Although First Union shareholders will own more than 70 percent of the combined company, all branches will be known as Wachovia Corp. The merger is scheduled to be completed as early as the third quarter of 2001 and as late as three years from now.
Wachovia spokesman Vince Scanlon said the banks intend to let Wachovia customers use First Union ATMs without incurring transaction fees and vice versa, but no definite decisions regarding this have been made. It is "way too early to tell" about rate changes, branch closures and job cuts in the Charlottesville area, Scanlon said.
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Wachovia has six branches in and around Charlottesville, including one in Newcomb Hall and at Barracks Road Shopping Center. First Union has one branch in the area, located on Route 29.
The deal involved $13.4 billion in stocks, with Wachovia shareholders receiving two First Union shares for each Wachovia share they own. The combined cost of financially merging the companies into a single entityis expected to be between $1.5 billion and $2 billion, and the companies will cut about 7,000 jobs over three years. That represents roughly 7.8% of their combined 90,296 employees.
According to Natalie Pruett, a corporate communications manager for First Union, half of the downsizing will accomplished through attrition.
Analysts had not expected First Union to acquire another company this year. The bank has had a long history of mergers and acquisitions, with more than 60 in the last 10 years. In 1998, it acquired Money Store, Inc., a lending business, for $2.1 billion, and paid $2.8 billion in restructuring charges after shutting it down. However, First Union has not participated in any acquisitions since G. Kennedy Thompson became chief executive last year.
The market premium on the deal for Wachovia shareholders - the difference between the offered price for Wachovia shares and the market price - was 6.8 percent. The banking industry considers this a relatively small premium, so it has fueled rumors of a hostile takeover bid.
According to media reports, banks like Wells Fargo and SunTrust were thought more likely to acquire Wachovia than First Union. And although hostile takeovers are very rare in the banking industry, many analysts think that SunTrust might also attempt one in the next few months.
In a joint press conference last Monday morning, Thompson and Wachovia Chief Executive Officer L.M. Baker characterized the deal as a "merger of equals," although First Union has more than three times the assets of Wachovia.
Baker said the planned integration was "a gradual, orderly process" and described it as a "jigsaw puzzle."
Thompson tried to ease investor doubt regarding the unexpected acquisition in light of First Union's history.
"It's a different transaction ... We are not about to revert to past practices of dilutive acquisitions," he said. "That's not what we're saying ... We're not interested in growth for growth's sake."
The new Wachovia will be headquartered in Charlotte, N.C., and will have an 18-member board of directors- nine each from the boards of Wachovia and First Union. When the merger is complete, Baker will become chairman of the new company and Thompson will become president and CEO.
Currently, Charlotte-based First Union provides financial services to about 15 million retail and corporate customersin 47 states and has $253 billion in assets. Winston-Salem, N.C.-based Wachovia serves about 3.8 million customers in five states and has total assets of $74 billion and deposits of $44.4 billion.
The combined company will have total assets of $324 billion and deposits of $182 billion. They will also have 19 million customers, 90,000 employees, 2,900 banking branches and nearly 600 brokerage offices.
First Union declared earnings last Monday of 62 cents per share, matching analysts' expectations, while Wachovia's earnings declaration of $1.22 a share on Wednesday beat expected results by 4 cents.
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