More than two years after completing its last major acquisitions, SunTrust Banks Inc. on Monday emerged from its deal-making hiatus with a pair of announcements - one that grabbed headlines and another that went all but unnoticed.
The Atlanta company's $14.87 billion unsolicited offer for its regional banking rival Wachovia Corp., which is already betrothed to First Union Corp., got most of the attention. But late in the day SunTrust announced a deal to shore up its investment banking operations, saying it had agreed to buy the institutional business of Robinson-Humphrey Co. from Citigroup Inc.'s Salomon Smith Barney division.
And the deal for Robinson-Humphrey could conceivably help facilitate the other transaction by adding to SunTrust's investment banking presence and making the company more attractive to Wachovia's shareholders.
"Clearly, at this point, SunTrust decided that they had to do something because they couldn't have First Union take over Wachovia and become the dominant franchise in their market," said John Wimsatt, an analyst at Friedman Billings Ramsey & Co. in Arlington, Va.
Part of First Union's business includes a significant investment banking presence, cobbled together through acquisitions in recent years and placed under the First Union name.
However, Nancy Bush, an equity analyst at Ryan, Beck & Co. in Livingston, N.J., said SunTrust would benefit from having a stronger investment banking capability whether it gets Wachovia or not.
"When you reach a certain size in the banking industry, and you have this large base of corporate clients, you need to be able to take them through the life cycle," Ms. Bush said. "This is still going to be a small operation, but it gets them closer to the goal."
The Robinson-Humphrey agreement had been rumored for weeks, but its price was not disclosed. The deal still needs regulatory approval, and SunTrust said it hopes to wrap it up by summer's end.
"This acquisition represents a logical extension of our overall corporate and investment banking strategy of delivering ideas, solutions, and capital to our clients," Charles Shufeldt, SunTrust's executive vice president for corporate and investment Banking, said in a press statement. "The acquisition provides a significantly enhanced public equity capability and brings to SunTrust what is arguably the premier mergers and acquisitions team in the Southeast."
Robinson-Humphrey, which has changed hands in several mergers in the last two decades, became part of Citigroup in 1998. Salomon Smith Barney has mostly swallowed the Atlanta boutique's retail brokerage and municipal bond businesses and handles all of Robinson-Humphrey's back-end functions.
But the latter's capital markets unit has remained largely independent, operating as a regional boutique offering institutional sales and trading, research, and other investment banking services. This arrangement, which was designed to help Robinson-Humphrey retain its longtime relationships in the South, also made it easier for Citigroup to sell it.
SunTrust said it would rename its SunTrust Equitable Securities unit SunTrust R-H Securities Inc., which would include Robinson-Humphrey as well as SunTrust's other capital markets and mergers and acquisitions operations and its debt capital markets division. The unit would have more than 700 employees.
SunTrust's announcements this week had a familiar ring. Three years ago it announced deals for Crestar Financial Corp. in Virginia and Equitable Securities, a Nashville brokerage operation that analysts say the company struggled to make work.
However, Monday's events didn't follow the script that SunTrust executives might have written for themselves.
In the wake of the Crestar and Equitable deals, SunTrust, known as a conservative, deliberate dealmaker, remained largely silent. But its silence may not have been entirely voluntary.
SunTrust executives had expected to be back at the altar for another deal last December, when negotiations to buy Wachovia on friendly terms were nearing fruition. But then, for reasons SunTrust officials say they still do not comprehend, L.M. "Bud" Baker Jr., Wachovia's chairman and chief executive officer, walked away from the deal.
"From our perspective, we were three days away from announcing a very attractive merger," said Barry Koling, a SunTrust spokesman. "And we think the proposals on the table that we made [Monday] are superior to that one for Wachovia shareholders and attractive for SunTrust shareholders."
L. Phillip Humann, SunTrust's chairman and CEO, was not available to comment Tuesday. But Mr. Koling said the company is set on buying Wachovia, even if Wachovia did not seek Monday's offer. "This is the right transaction," he said.
But hostile bids in the banking industry do not have a happy history, and analysts for the most part say they do not believe SunTrust will succeed. The best it can hope for, some say, is a chance to squash a deal that threatens its future.
And even if SunTrust fails to win Wachovia, analysts said, they believe it is strong enough and large enough to cope with a combined Wachovia-First Union at least for a year or two as it picks up customers disgruntled by the merger.
"They've been an extremely successful bank and a conservative lender," said Friedman Billings' Mr. Wimsatt. "I don't see any reason that can't continue over the next couple of years on their own."
But at some point SunTrust's size could be a disadvantage, and it could be forced to consider alternative deals, such as buying North Carolina's BB&T Corp., which could fill in the gaping hole in its territory in the Carolinas, he said.
From Our Archive
- Battle for Wachovia: Spurned Suitor SunTrust Returns And This Time Its Hostile - May 15, 2001
- Battle for Wachovia: Late Addition to the Agenda: A Hostile in Your Market - May 15, 2001
- SunTrust CEO: Rivals' Deal To Create Opportunities - April 24, 2001
- Wachovia Deal Puts SunTrust on Griddle - April 17, 2001