CHARLOTTE, N.C. -- Wachovia Corp.'s board of directors rejected an unsolicited merger proposal from SunTrust Banks Inc. late Tuesday, calling the deal financially inadequate and strategically inferior to the merger agreement Wachovia already has with First Union Corp.
The decision was announced after a 5-hour meeting on Tuesday at the banks Winston-Salem, N.C. headquarters, where the 15-member board weighed SunTrust's $14.7 billion offer against the $13.4 billion "merger of equals" with First Union announced April 16.
But shortly after Wachovias announcement Atlanta-based SunTrust put out a statement vowing to continue its battle for Wachovia by taking it to the Georgia and federal courts. The Atlanta bank also said it would lobby Wachovia shareholders to reject a First Union/Wachovia merger.
Wachovias decision to reject the SunTrust offer followed an announcement from Charlotte, N.C.-based First Union earlier Tuesday that it would slightly sweeten its offer by offering a new class of preferred stock that would guarantee Wachovia shareholders the same $2.40 annual dividend after the merger. During the meeting, the Wachovia board approved an amendment to the merger agreement to incorporate the new dividend offer.
In a statement, Wachovia chairman and chief executive L.M. "Bud" Baker Jr said the company had talked in the past about combining with SunTrust, but each time concluded a merger would not work. And he described First Union as the better choice for long-term earnings growth.
"First Union has invested heavily in technology and has a wide breadth of products and services," Mr. Baker said. "Wachovia has earned national acclaim for its high standard of customer service and long-term relationships. By blending these strengths, the new Wachovia will create the leading financial services company on the East Coast, with an excellent platform for delivering superior long-term performance."
First Union chairman and chief executive G. Kennedy Thompson applauded the board in a statement, saying, "The board reviewed the numbers and clearly communicated with their vote that our merger of equals is the better choice for Wachovia shareholders. We are confident that shareholders will agree when they look at the facts. We believe that the SunTrust proposal simply wont work, and we are glad that the board has validated our view."
Since SunTrust announced its unsolicited $14.7 billion offer for Wachovia on May 14, it has been sparring publicly with Charlotte-based First Union. Both companies have sought support from Wachovia shareholders through full-page newspaper advertisements, and their executives have been touting their offers in interviews and meetings with analysts and institutional investors.
Officials at Wachovia were mostly quiet in the days leading up to the board meeting, though Mr. Baker has made it clear that he wants to see the First Union merger through. On Friday, Mr. Baker announced he would forego about $500,000 in annual retirement income that was part of the original merger agreement with First Union, hoping to remove a sticking point with some investors.
The Easter Sunday deal between Mr. Baker and First Union chairman and chief executive G. Kennedy Thompson offers 2 First Union shares for each Wachovia share, keeps the Wachovia name, and splits the board 50-50. Mr. Thompson said in an interview Friday that he believes a combined Wachovia-First Union would be a stronger, faster-growing company more able to compete in both banking and non-banking businesses.
SunTrust, which came within a few days of closing a similar "merger of equals" with Wachovia in December, has touted its latest, unsolicited offer as financially superior. SunTrust offered 1.08 shares for each Wachovia share. The company argues it is a better fit culturally and geographically and would require fewer branch consolidations and job cuts. It also offered to raise its dividend to match Wachovia's.
In a statement on Tuesday, SunTrusts chairman and chief executive L. Phillip Human said, "The SunTrust proposal offers a higher current value, a simpler and better dividend, a stronger currency, and lower execution risk. Our proposal is also more favorable for Wachovia's employees and communities, especially those in North Carolina and South Carolina. We are particularly disappointed that the Wachovia Board made its decision without talking to us, as it was clearly permitted to do under its agreement with First Union."
SunTrust said it plans to sue Wachovia's board and Wachovia and First Union in Georgia over the revised dividend proposal announced Tuesday. It said it is filing a federal suit alleging that the two companies' public disclosures "are materially false and misleading."