Posted on: Tuesday, April 17, 2001

First Union deal gets lukewarm response

USA Today

NEW YORK — Wall Street cast a skeptical eye yesterday over First Union's plans to buy Wachovia Corp. for about $13 billion and create the fourth-largest bank in the country.

First Union said it will combine with its North Carolina rival and form a new bank based in First Union's hometown of Charlotte, N.C. First Union will adopt the Wachovia name.

If completed, the deal would create a powerful banking presence with $324 billion in assets and 2,900 branches stretching from Connecticut to Florida. The new bank also would eliminate about 7,000 jobs, or 8 percent of its total work force, over the next three years.

But analysts aren't sure the time is right for this merger. First Union is a "work in progress and not quite ready to undertake such a large deal," says Michael Plodwick at UBS Warburg. He says both banks are "performing at what we consider less than optimum levels."

Critics say First Union isn't ready because it still is in the midst of a sweeping and costly restructuring. Also, many on Wall Street note that two of First Union's recent acquisitions turned out to be ill-advised.

First Union chief executive officer Ken Thompson tried to quiet the concerns. "This is not about getting bigger," he said. "This is about creating strength and value for shareholders."

The acquisition would be Thompson's first since he took over a year ago. He took pains to try to assure investors this deal would not be like the troubled acquisitions of the past.

Many customers fled after First Union purchased CoreStates Financial. First Union also was forced to shut down the Money Store home equity lender just two years after taking it over.

Both banks' boards have approved the deal, under which each company will name nine directors to the board. The transaction could close by the third quarter of this year.

Not everyone is sure Wachovia will end up with First Union, however. Speculation swirled yesterday that even though the boards of both banks have approved the merger, another bidder would top First Union's offer.

First Union is swapping two of its shares for each Wachovia share. For most of the day after terms were announced, Wachovia traded above First Union's offer. Wachovia ended the day at $62.05, up $1.85. First Union fell 72 cents to $31.20, making its offer worth $62.40 a share.