Battle for Wachovia: 1st Union Chief Exec: Integration Under Way

CHARLOTTE, N.C. — As talk of a bidding war with SunTrust Banks Inc. swirls, First Union Corp.’s top executives are trying to position their merger agreement with Wachovia Corp. as a done deal, saying they are sticking to a schedule aimed at completing it this fall.

First Union and Wachovia have repeatedly pledged to move carefully after their planned combination to avoid angering customers. And in an interview with American Banker Friday, G. Kennedy Thompson, chairman, chief executive, and president of First Union, was sending out a clear message: First Union’s deal with Wachovia is forging ahead.

However, Mr. Thompson and David M. Carroll, the First Union executive representing the company in the planned integration with Wachovia, said they also hope that Wachovia shareholders will see the deliberate pace of merger planning as another argument in favor of the deal. The two companies began talking in August.

Mr. Carroll, who is co-chairman of the integration effort, said he and his Wachovia counterpart, chief financial officer Robert McCoy, had agreed to forge ahead after hearing of SunTrust’s rival bid last Monday. In a phone call that morning, “Bob and I both agreed that we’ve got an agreement. Nothing has changed; we’re still moving forward,” he said.

First Union’s offer for Wachovia of Winston-Salem, N.C., worth about $13.4 billion when it was announced April 15, is lower than the $14.7 billion hostile bid made by SunTrust a week ago. But Mr. Thompson is adamant that First Union’s is the better offer. And as executives move along on the integration with Wachovia, they are trying to create a public image that SunTrust’s offer is nothing more than a minor distraction.

“We feel very confident that ours is the best offer, and so there is no reason for us to consider changing our offer,” Mr. Thompson said in the interview. Yet he declined to say First Union’s offer is absolutely final.

Mr. Thompson also said he had no idea that Wachovia CEO L.M. Baker Jr., who is known as “Bud,” was simultaneously negotiating with SunTrust and that the two almost cut a deal in December. First Union began talking with Wachovia nine months ago, he said. “I didn’t hear anything about it from Bud as we were negotiating our deal,” Mr. Thompson said. “But it’s also out now that Bud and I have been talking since late August of last year.”

The First Union CEO questioned whether Wachovia and SunTrust are really a good fit, given that they were unable to consummate their merger talks.

SunTrust had been close to buying Wachovia in December, but the latter bolted at the last minute. SunTrust chairman and chief executive L. Phillip Humann said he was not sure what prompted Mr. Baker.

Asked whether his interest in Wachovia may have played a role in killing the SunTrust deal, Mr. Thompson said, “I don’t know. My speculation is that it became apparent to Bud that a deal with First Union was a friendly deal that would preserve Wachovia, and I think he probably decided that the other possibility would not do that.”

Mr. Carroll agreed. “Our competitors [SunTrust] have talked about all the cultural overlap between Wachovia and them. But in 16 years, they have never been able to get it done.”

Analysts, however, have repeatedly questioned First Union’s track record in acquisitions, including the messy and costly acquisition of CoreStates Financial Corp. in 1998.

Mr. Thompson defended First Union’s acquisition record. “The facts are, we’ve completed 81 bank mergers over the last 17 years, and we’ve completed 10 mergers in the capital management/capital markets area.

“We did have issues with the CoreStates merger. We’ve addressed those; we’ve learned from our mistakes; but other than that, our record of conversions and integrations, I think, is better than anybody in the industry,” he said, adding that First Union is working hard to ensure that this deal is done smoothly.

Since the deal was announced, more than 100 people on 33 teams from both Wachovia and First Union have met regularly, mostly in Winston-Salem, to choose people, processes, and systems for the combined company. The companies filed a formal merger application with the Richmond, Va., Federal Reserve Bank two weeks ago, and they have picked senior and regional executives for the post-merger company.

“I think we would be able to move faster than SunTrust because we are into the process,” Mr. Thompson said, “and if everything goes as we planned, we are going to close this deal in the third or fourth quarter.”

Mr. Carroll said the integration meetings, as well as a series of town meetings that Mr. Baker and Mr. Thompson attended with thousands of employees, have shown that the companies’ employees can work together, despite concerns that their cultures were too different. “They’re all kind of just giddy about how much alike we are,” Mr. Carroll said of the employees. “What I didn’t expect was how much we had in common.”

As Mr. Thompson spoke, Atlanta-based SunTrust was preparing another round of full-page newspaper advertisements to appear today, promoting the deal in five cities in the Carolinas. Last week, SunTrust ran ads in the same cities describing its offer for Wachovia as “a better deal for Wachovia’s employees, customers, and North Carolina communities.”

Mr. Baker so far has been silent about the SunTrust offer. A Wachovia spokesman said again Friday that its board would meet “in the near future” to discuss the offer. Those familiar with the situation say the meeting could happen this week.

But some observers remain skeptical.

“They’ve had a lot of mergers that didn’t work out,” said Nancy Bush, an analyst at Ryan, Beck & Co. who has been critical of the First Union-Wachovia deal. “I can’t think of anywhere there wasn’t some whiff of, ‘Gee, this isn’t going so well,’ ” she said.