First Union to Buy Wachovia

First Union Corp. said on Monday it agreed to buy Wachovia Corp. for about $13.4 billion in stock to form the nation's No. 4 bank, as the two rival North Carolina-based banks combine to boost profits in a slowing U.S. economy.

The deal, which will create a bank with 19 million customers, $324 billion in assets and 90,000 employees, comes as both banks are fighting loan losses and declining revenues from nontraditional bank businesses like securities brokerage and sales. The combined company, which will be known as Wachovia Corp., expects to cut 7,000 jobs over the next three years, half of them through turnover and retirements.

Charlotte, N.C.-based First Union is offering two of its shares for each share of Wachovia, valuing Wachovia at $63.84 a share, in the deal that is scheduled to close in the third quarter. The purchase price, based on First Union's closing stock price of $31.92 on Thursday, represents only a 6 percent premium to Wachovia's closing price of $60.20.

First Union, now the No. 6 U.S. bank holding company, has run into trouble in recent years after it made a string of large acquisitions that then proved hard to digest. Its earnings also have been hurt in past quarters by bad loans and losses on its investment portfolio.

The deal marks First Union's latest big deal since it announced a sweeping, $3 billion restructuring deal last summer and said it would shut the Money Store, the ailing consumer finance operation that lent to people with poor credit histories. The bank bought it in 1998. First Union also lost droves of customers after it bought Philadelphia-based CoreStates Financial in 1998.

Wachovia, headquartered in Winston-Salem, N.C., also has been hit by the U.S. economic slowdown and warned at the end of March its first-quarter earnings would miss expectations. Many U.S. banks have had loan losses and slack revenue growth, because the slowing economy has caused companies to default on loans and pull plans for stock offerings.

The companies expect to save $890 million a year through combining operations and to take $1.45 billion in charges for severance packages, employee retention plans and systems integration. The companies expect to sell $1.5 billion to $2 billion in customer deposits to gain regulatory approval for the deal.

First Union's chief executive and chairman, G. Kennedy Thompson, will become president and chief executive of the combined company. Wachovia's chief executive and chairman, L.M. Baker Jr., will become the new organization's chairman.

Wachovia's board is expected to give shareholders a special dividend of 48 cents a share before the expected closing of the deal in the third quarter. The combined company is expected to pay a quarterly dividend of 24 cents a share.

Investment bank Merrill Lynch and Co. Inc. represented First Union in the deal's negotiations, while Credit Suisse First Boston, a unit of Switzerland's Credit Suisse Group, represented Wachovia.