Takeover battles can be such a distraction.

First Union

(FTU)

, however, seems to have won investors' full attention as it battles with

SunTrust

(STI) - Get Report

over Southern banking peer

Wachovia

(WB) - Get Report

, which has agreed to be acquired by First Union.

Wednesday, the rivals kept up their sniping, but the banks' shares continued to point toward a First Union victory when Wachovia shareholders vote in August. When SunTrust last month announced its unsolicited offer to acquire Wachovia, its bid was worth 17% more than First Union's. However, since then the spread has shrunk to just 4%, indicating investors are more inclined to buy First Union's take on things.

The news of the day was that Wachovia and First Union again adjusted the merger they agreed to

just last month, modifying breakup fees that SunTrust had criticized as unfairly preventing a rival offer. Earlier, in the face of investor criticism, the companies pared back an executive's pay package and boosted their planned dividend.

Last Wednesday, SunTrust sued First Union and Wachovia in Atlanta, saying the banks misled investors over the value of the fees First Union would collect under an option agreement if Wachovia decided to walk away. Under the agreement, either merger partner could buy up to 19.9% of each other's stock if the deal fell apart.

Asked whether Wednesday's move amounted to an admission that the original terms were too restrictive, a Wachovia spokesman replied that "all of these moves have been made to remove any possible distractions for shareholders from the merits of the merger." A First Union spokeswoman added, "The common theme has been to clarify the benefits for shareholders."

First Union closed unchanged at $31.60, while Wachovia rose 62 cents to $65.87 and SunTrust advanced 81 cents to $60.80.

The latest adjustment marks the third time the companies have changed terms since SunTrust jumped into the fray. First came a

reduction of a much-criticized pay package for Wachovia Chairman L.M. "Bud" Baker, and then a

more generous dividend for Wachovia shareholders that put the First Union offer on par with SunTrust's dividend.

Even if it wasn't making headway with investors, SunTrust was feeling flush. "We still have a better deal for Wachovia and a really good deal" for SunTrust shareholders, said Gary Peacock, head of investor relations. SunTrust stuck to its guns, saying it wouldn't "bid against itself" by sweetening its offer and also ruled out a so-called collar, which fixes the amount of stock the acquirer must issue should its shares fall below a certain point.

Responding to an analyst question, a SunTrust spokesman said, "Collars would simply be a form of raising our bid, and we don't think that is necessary."

But for now, it's not clear that investors agree.