Wachovia to Buy SouthTrust for $14.3 Billion

NEW YORK – Banking giant Wachovia Corp. (WB) is buying competitor SouthTrust Corp. (SOTR) in a deal valued at $14.3 billion, the companies said Monday.

The combination will create the largest bank in the southeastern U.S. and give Wachovia new leverage in the large Texas banking market.

"We believe we are creating an unbeatable combination in the heart of our Southern franchise," Ken Thompson, Wachovia's chief executive, chairman and president, told banking analysts on a morning conference call. "We believe no one can touch us."

Thompson said the merger will end up being "a knockout combination" for shareholders, customers and clients.

"This is not a deal we had to do," he said. "And it jump-starts our entry into the tremendous Texas market."

The enlarged Wachovia will have $464 billion in assets and market capitalization of $76 billion, maintaining its position as the nation's fourth largest bank in terms of assets.

The deal calls for Charlotte, N.C.-based Wachovia to exchange 0.89 shares of its common stock for each share of SouthTrust, which is based in Birmingham, Ala. The companies valued the deal at $14.3 billion, based on Wachovia's closing stock price of $47 on Friday.

SouthTrust chairman and CEO Wallace Malone cited the "cultural compatibility between both banks and their management teams." And he predicted that the merger will prove to be lucrative to shareholders of both banks.

"I personally feel Wachovia's stock price is undervalued," he said on the conference call. "I also feel SouthTrust can bring a lot to the table in reaching Wachovia's potential."

Thompson had told shareholders at Wachovia's annual meeting in April that he was not feeling pressure to make a big deal following mega-mergers between Bank of America (BAC) and Fleet and J.P. Morgan Chase & Co. (JPM) and Bank One (ONE).

"We will not abandon our discipline. There's no need to do a deal, and we would not burden our shareholders with a bad one," Thompson said then.

The companies said they expect the integration to take 15 months, a process that is likely to cost $431 million after taxes. After that initial period, the transaction should generate $255 million in annual after-tax cost reductions.

The deal is expected to be accretive to cash earnings per share within two years, and to Wachovia's operating earnings within 30 months, the companies said. The transaction is expected to close in fourth quarter of this year.

Malone will become vice chairman of Wachovia once the transaction is complete. He and two other members of SouthTrust's board of directors will join the board of Wachovia, which will maintain its headquarters in Charlotte.

Wachovia said the transaction will leave it with an additional $1.7 billion in cash that it intends to use to buy back its own stock.

Wachovia currently has $411 billion in assets, with banking operations in 11 eastern states and Washington, D.C. SouthTrust has $52.7 billion in assets and does business in nine southern states.

Shares of Wachovia opened lower Monday, down $2.39 to $44.61 in early trading on the New York Stock Exchange. SouthTrust's shares were up $4.13 to $38.93.