This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Court Upholds Wachovia-First Union Merger

Updated from 12:42 p.m. EDT:

SunTrust's (STI - Get Report) quest to break up a planned merger between Wachovia (WB - Get Report) and First Union (FTU) suffered a big legal setback Friday, as a North Carolina judge refused to nullify a hefty breakup fee.

As part of their friendly merger agreement announced in mid-April, Wachovia and First Union agreed to a breakup provision that would allow First Union to acquire a 19.9% stake in Wachovia, valued at up to $780 million, if the deal did not go through. SunTrust charged that the breakup provision attempted to coerce Wachovia shareholders into voting for the First Union merger. But North Carolina Judge Ben Tennille rejected that argument, saying the court was convinced Wachovia shareholders could make an "uncoerced, fully informed decision" about how to vote.

However, the court did approve a motion by SunTrust to invalidate a nontermination provision that essentially would have barred another company from making an unsolicited bid for Wachovia before January 2002. This helps SunTrust some; if Wachovia does vote against a First Union merger at its shareholder meeting on Aug. 3, it will allow SunTrust to move forward with its hostile bid.

First Union agreed to acquire Wachovia this spring in a stock swap valued at about $14 billion. SunTrust countered with an unsolicited bid that initially offered a 17% premium to the First Union pact. But the premium has since shrunk to about 5% as investors warmed to the idea of a First Union deal and worried about shareholder dilution at SunTrust. For some time now, most observers have expected First Union to carry the day.

"Both sides can claim victory for different reasons today," says Putnam Lovell banks analyst Jennifer Thompson. But she notes that the refusal to nullify the deal's breakup fee is a clear setback for SunTrust, no matter how the bank attempts to spin the news. SunTrust had said if the courts reduced or canceled the $780 million fee, and SunTrust wound up winning the bid for Wachovia, it could share the savings with Wachovia shareholders by adding cash to its current per-share offer. "Basically, that didn't happen," says Thompson. (Putnam Lovell has no underwriting relationship with any of the banks.)

The stocks themselves were little changed by the news. Thursday, SunTrust rose 51 cents to $68.50, Wachovia added 4 cents to $70.04 and First Union edged 9 cents higher to $35.00.

Later Friday afternoon, Institutional Shareholder Services, an influential advisory firm, will issue a recommendation on whether or not Wachovia shareholders should back a merger with First Union.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
WB $23.59 1.24%
STI $40.36 -0.69%
AAPL $93.24 -0.41%
FB $117.81 -0.21%
GOOG $701.43 0.82%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs