CHARLOTTE, N.C. - First Union Corp. has begun using its home field advantage in its effort to win Wachovia Corp.
The company is looking to change the law in North Carolina in an attempt to protect its merger agreement with Wachovia Corp. from being undone by hostile bidder SunTrust Banks Inc.
SunTrust, meanwhile, after a board meeting Wednesday, announced plans to buy back billions of dollars of its own stock in an attempt to push its bid premium back above that of First Union's merger agreement with Wachovia, as the now month-old battle for Wachovia continues.
First Union executives are hoping that a potentially friendly North Carolina Legislature could help the Charlotte banking company thwart SunTrust's bid for Wachovia. On Tuesday, a legislative committee agreed to amend an existing bill on securities reform that was sailing toward passage, tacking on an amendment proposed by First Union's outside lawyers that would block SunTrust's efforts to call a special meeting of Wachovia shareholders.
The amendment, proposed only Monday, would eliminate a provision in state law that allows holders of 10% of a company's stock to call for a special stockholder meeting, as long as such a move is permitted in the company's bylaws. This month, as part of its hostile bid for Wachovia, SunTrust proposed a change in Wachovia's bylaws to let it push for a special shareholders' meeting at which it would try to elect board members friendly to its offer.
The North Carolina House of Representatives was scheduled to vote on the bill after press time Wednesday, and the measure could reach the state Senate as early as today. If approved there, it would need only the signature of Gov. Mike Easley, a Democrat, before the amendment would take effect. A spokesman for Gov. Easley said the governor would not comment until the bill reaches his desk.
First Union believes legislators and public officials are likely to be sympathetic to its efforts to thwart Atlanta-based SunTrust, which on May 14 offered $14.7 billion in stock for Wachovia in an unsolicited bid. Wachovia's board rejected the offer one week later. Legislative leaders quoted in the Winston-Salem Journal in Wachovia's hometown said they support First Union's proposed legal changes.
Meanwhile, SunTrust's board on Wednesday approved a new stock buyback of 5 million shares in a move analysts said is designed to pump up its stock price and its all-stock bid for Wachovia. On Tuesday, SunTrust's offer for Wachovia had slipped below First Union's for the first time, when bank stocks got pummeled by market volatility.
Because it is offering to trade stock for Wachovia, SunTrust's bid has shrunk since it was announced May 14 along with its stock price, which has fallen about 7%. The decline means SunTrust's bid is now about even with First Union's two-for-one share offer for Wachovia.
First Union's effort to change state law in its favor is the latest step in a merger battle that is playing out on multiple fronts. The move came as a surprise to SunTrust executives, who learned about it only Tuesday night, according to a spokeswoman.
The amendments would eliminate what First Union and its lawyers call "loopholes" in state law, which they say give hostile bidders such as SunTrust an unfair advantage.
Specifically, the changes would disallow corporate bylaws that allow 10% of a company's shareholders to call for special shareholders meetings. SunTrust has proposed amending Wachovia's bylaws to allow such a move. If it were to pass at Wachovia's Aug. 3 annual meeting, SunTrust plans to push for a shareholder meeting, where it would try to elect a board that would consider its merger offer.
"It is reasonable for a state's legislature to enact legislation that would protect an important business," lawyer Russell M. Robinson 2d of Robinson, Bradshaw & Hinson in Charlotte, one of First Union's law firms, wrote in a memo to the bill's sponsor on Monday.
A SunTrust spokesman said the bill would limit Wachovia shareholders' ability to choose a merger partner. "It would appear to be unfair to Wachovia shareholders and, incidentally, to North Carolina, because it would in fact hasten the job losses and branch closings that would be part of the First Union deal," said spokesman Barry Koling.
Mr. Koling said SunTrust would try to fight the change, but with the North Carolina House meeting Wednesday afternoon to take up the bill, there wasn't much time. Asked whether SunTrust has lobbyists in North Carolina's capital of Raleigh, Mr. Koling said, "No, but you can be sure we will before this day is out."
Meanwhile, with its share buyback plan announced Wednesday, SunTrust joins both First Union and Wachovia in behind-the-scenes efforts to strengthen their stock prices.
Nancy Bush, an analyst who follows the companies for Ryan, Beck & Co., said of SunTrust's stock buyback, "It's an effort that goes along with First Union and Wachovia propping up their stock prices." Ms. Bush, who has been outspoken in her opposition to the First Union-Wachovia merger, also said First Union's legislative maneuvering is "kind of cheeky. ... Whatever it is, it's all very unseemly and just smacks of disservice to Wachovia shareholders."
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- Battle for Wachovia: Thompson Takes to the Stump - May 18, 2001
- Battle for Wachovia: Will 'Other Deal' Help SunTrust Net Wachovia? - May 16, 2001
- Battle for Wachovia: Spurned Suitor SunTrust Returns And This Time Its Hostile - May 15, 2001
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