Philly Politicians, Public Seeing Red at 1st Union Deal to Buy

Scattered political and shareholder opposition to First Union Corp.'s deal to buy CoreStates Financial Corp. is unlikely to stop the merger, but criticism of the $16.6 billion acquisition has grown louder.

City politicians in Philadelphia, where CoreStates is based, are threatening to blacklist First Union as a handler of city funds. They have also called for hearings to investigate the deal.

In addition, a group of shareholders has sued, alleging that CoreStates is shortchanging them by selling to First Union. (See related report on page 40.)

To show its commitment to the Philadelphia area, First Union recently announced a $5 million investment in renovation of a former railroad terminal that is to be part of a convention center. And the company has plans for a $100 million community foundation.

It has also named an 11-member executive team that includes five CoreStates officials to run its Northeast region.

But some in Philadelphia have not been persuaded. "You don't buy friends, at least not here," said City Councilman Michael A. Nutter. "There is a tremendous amount of resentment and anger about the takeover of our hometown bank. And there is an element of distrust. There is a credibility gap on the First Union side."

Mr. Nutter and other Philadelphia officials are still seething over First Union's reversal of a pronouncement that it would locate 3,000 jobs in the Philadelphia area. The company now says the jobs will be spread over a much wider region.

The threat to ban First Union from handling the city's bank business came last month when Councilman Nutter introduced a bill that would delete First Union from a list of companies approved as depositories for city funds. CoreStates currently gets most of the city's business. The bill is awaiting a public hearing by a Council committee.

Councilman David Cohen has introduced a resolution authorizing an investigation into the merger and what steps the city might take to salve its "potentially devastating impacts." Mr. Cohen's resolution calls for the issuance of subpoenas to compel bank officials to testify and produce certain documents.

The City Council is particularly concerned by the large job losses and branch closings expected to result from the merger. First Union has said it will cut $723 million from CoreStates' expense base. Observers expect the company to eliminate at least 6,000 jobs.

U.S. Sen. Arlen Specter, R-Pa., has also stated concerns about job losses. He has asked the Department of Justice's antitrust division to review the deal.

Meanwhile, a group of shareholders have filed a complaint in Philadelphia County Court alleging that, by making a deal with First Union, CoreStates had cheated its stockholders out of a higher bid from Mellon Bank Corp. Pittsburgh-based Mellon reportedly had earlier offered $88 a share for CoreStates but was rejected. First Union is paying about $84 a share.

CoreStates presented preliminary objections to the suit in a hearing Jan. 13, and a judge's ruling is expected soon. CoreStates officials declined to comment about the case.

The suit alleged that CoreStates officials breached their fiduciary duty by cutting a deal for their own benefit. As part of the merger agreement, CoreStates chairman and chief executive officer Terrence A. Larsen becomes First Union vice chairman and head of the combined company's corporate banking unit.

Moreover, Mr. Larsen and 32 other key CoreStates executives are to get about $53 million in compensation packages, according to a recent First Union filing with the Securities and Exchange Commission. Mr. Larsen is to get $2.5 million a year in salary and bonuses for five years, as well as lucrative stock and stock options and rich retirement benefits.

"There is a better deal out there for shareholders ... but there is clearly not a better deal for Terry Larsen," said Mark C. Rifkin, an Ardmore, Pa., attorney who is representing the shareholders.

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