Wachovia Corp. (WB) said Thursday it would buy A.G. Edwards Inc. (AGE) for $6.8 billion, creating the second-largest U.S. retail brokerage in a bid to win more business from baby boomers as they grow older and wealthier.

The acquisition is the latest in a series by Wachovia Chief Executive Ken Thompson as he builds one of the most powerful financial institutions in the United States.

"We like the demographic backdrop: the aging of baby boomers, and the management of retirement assets," David Carroll, head of capital management at Wachovia, said in an interview. "We bring a richer product menu and larger capital markets capability."

The terms value A.G. Edwards at $89.50 per share, a 16 percent premium over Wednesday's closing price. That equates to 19.5 times expected fiscal 2008 earnings and 3.2 times book value, levels that several analysts called fair.

Shareholders would receive 0.9844 of a Wachovia share and $35.80 in cash for each of their shares. Through Wednesday, A.G. Edwards shares had risen 22 percent this year.

The combined brokerage, to be called Wachovia Securities, will have 14,784 brokers, vaulting past Citigroup Inc. and ranking behind Merrill Lynch & Co. Its $1.15 trillion of client assets would rank third, trailing Merrill and Citigroup, Wachovia said.

"We knew we needed scale, we knew we needed additional products (as clients demanded) one-stop financial services," A.G. Edwards Chief Executive Robert Bagby said on a conference call. "We could not provide that."

St. Louis-based A.G. Edwards, founded in 1887, has struggled to compete with a limited range of products, amid competition from Merrill, Morgan Stanley, UBS

and others, analysts said.

"We will get more mandates on the investment banking side simply because of the greatly expanded retail distribution," Thompson said on the conference call. "(Adding A.G. Edwards) will also allow us to sell considerably more bank products."

Charlotte, North Carolina-based Wachovia, the No. 4 U.S. bank, said the purchase would expand its brokerage operations in 48 of the 50 largest U.S. metropolitan areas. Wachovia Securities headquarters would move to St. Louis from Richmond, Virginia.

JOB CUTS

Wachovia plans to shut up to 230 of the combined brokerage's 3,350 offices within three years and cut about 4,000 jobs, or one-fourth of workers who are not Series 7 brokers. It expects $860 million of charges and $395 million of annual cost savings.

Thompson led First Union Corp.'s 2001 purchase of Wachovia and took the latter's name. In 2004, he bought SouthTrust Corp. for $13.7 billion, and last October, he paid $24.2 billion for California mortgage lender Golden West Financial Corp.

Thompson called the A.G. Edwards purchase an "end game" and said he does not plan to buy more brokerages. He said Wachovia may buy small banks in the western or southwest United States, but plans no "significant" bank purchases for a while.

Prudential Financial Inc., which owns 38 percent of Wachovia Securities, said it supports the A.G. Edwards purchase.

Wachovia Securities Chief Executive Daniel Ludeman will retain his title. Bagby will chair the combined brokerage.

A.G. Edwards is the largest independent U.S. brokerage, with 6,618 brokers and $374 billion of client assets. Wachovia Securities has 8,166 brokers and $773 billion of client assets.

"It's a good deal for Wachovia," said Mark Batty, an analyst at PNC Wealth Management in Philadelphia, which invests $74 billion. "In retail brokerage, scale is key."

In afternoon trading, A.G. Edwards shares were up $10.60 at $87.75. Wachovia were down 34 cents at $54.21.

Shares of other independent brokerages rose after Wachovia's announcement. Raymond James Financial Inc. jumped as much as 11.5 percent, while St. Louis' Stifel Financial Inc. rose as much as 9 percent.

Wachovia expects the transaction to close in the fourth quarter and add 1 cent per share to 2008 operating profit. A.G. Edwards will pay it $270 million if the merger falls apart.

Credit Suisse, Wachovia's investment bank and the law firm Simpson Thacher & Bartlett LLP represented Wachovia. Goldman Sachs & Co. and the law firm Wachtell, Lipton, Rosen & Katz represented A.G. Edwards.