Preferred Issues: In Battle for Wachovia, Many Suits, Many Goals

June 04, 2001, 1:00 a.m. EDT 6 Min Read

CHARLOTTE, N.C. As would-be merger partners First Union Corp. and Wachovia Corp. slug it out in the media with rival SunTrust Banks Inc., the three companies are also in a potentially costly though less visible undercard bout in the courts.

Both sides already have chalked up victories in and out of the Georgia and North Carolina courthouses, where their lawyers, who include some of the nations best-known firms, are going at it almost daily in filings and hearings.

Experts say the suits are mostly part of a sideshow that also includes a daily barrage of press releases, slide shows, and investor presentations.

In the end, its about price and fairness to the shareholders, said Chuck Muckenfuss, a partner at Gibson, Dunn & Crutcher in Washington. Mr. Muckenfuss, a former Senior Deputy Comptroller of the Currency who once worked at the Federal Deposit Insurance Corp., added: Oftentimes, things get resolved one way or the other. Rarely does the lawsuit play itself all the way out.

Litigation can help sway opinion outside the courtroom, Mr. Muckenfuss said. In most cases, they are jousting for advantage. Lawsuits are opportunities to deliver messages back and forth to the relevant audience.

None of the companies or their lawyers would comment publicly on the legal wrangling, even though they are privately celebrating small legal wins. But amid the deluge of court documents, one thing is clear: The parties are hoping to hobble or even halt one another as they campaign for votes from the judges who matter most Wachovias shareholders.

Each court victory can bring brief tactical advantages that affect stock prices or help the broader public relations battle. Changes in the companies stock prices could be particularly damaging in this case, where all the principals have offered pure stock bids and SunTrusts chances depend so heavily on how its bid stacks up against First Unions.

SunTrusts unsolicited offer of 1.08 shares for each Wachovia share was worth about 16.7% more than First Unions when it was announced on May 14. Since then the Atlanta companys stock price has tumbled and the premium over First Unions offer has fallen below 4%. Meanwhile, the market has bid Wachovias shares above SunTrusts offer over the past week, an indication that investors expect either SunTrust or First Union will raise their bids.

Some of the legal maneuvering has already led to tactical shifts. On Wednesday SunTrust won a round when First Union and Wachovia announced they were revising a controversial provision in their merger agreement designed to ward off other suitors a provision that had been the target of SunTrusts lawsuit in Georgia. The companies agreed to cap the value of the break-up fee at $780 million and require payment in cash and readily marketable debt or other securities. They did so, they said, to eliminate any possible distraction of shareholders from the merits of the First Union-Wachovia merger.

And with about three months to go before the Aug. 3 Wachovia shareholder vote on the First Union merger, theres a lot of time for more legal potshots and for lawyer fees to soar: All three banking companies have retained top-tier firms, the type whose partners charge upward of $600 an hour.

In the latest development, SunTrust agreed Friday to withdraw one of its two suits (at Fulton County Superior Court in Atlanta) and take its case to the North Carolina state court where it was sued by First Union and Wachovia. SunTrust agreed to the move after its rivals won a temporary restraining order against the Georgia state suit. The two sides also agreed to move the case into North Carolina Business Court in Greensboro, N.C., which specializes in this type of complex litigation.

The legal war had added another battleground on Thursday. A SunTrust executive who owns some Wachovia stock sued the company at Forsyth County Superior Court in Winston-Salem, N.C. Theodore C. Hoepner, a SunTrust vice chairman and the owner of 280 Wachovia shares, wants Wachovia to cough up a list of shareholders, and says North Carolina law entitles him to the list.

The court documents read a bit like whining kids trying to explain how they wound up in a schoolyard scrap, as in He made fun of me because Im short and Teacher, they broke the rules. But the rules are serious; the suits hinge on details of the First Union-Wachovia merger agreement designed to deter a hostile bidder such as SunTrust.

As it continues to push its offer, SunTrust is using the services of Skadden, Arps, Slate, Meagher & Flom. Wachovia has a pair of law firms on retainer: Simpson Thacher & Bartlett, which advised Wachovia in its merger talks with First Union, and Wachtell, Lipton, Rosen & Katz, which was hired to help fend off SunTrusts offer.

Wachtells Edward D. Herlihy is known in Southeast banking circles for advising NCNB Corp. of Charlotte to back off a hostile bid for Citizens and Southern National Bank in 1990. Citizens and Southern ultimately merged with Sovran, but NCNB came back a year later and bought the combined company. NCNB was a predecessor to NationsBank, which later became Bank of America.

First Union is represented by Sullivan & Cromwell, another old Wall Street firm whose managing partner, H. Rodgin Cohen, is an authority on banking law. First Union has hired Robinson Bradshaw & Hinson, whose founding partner, Russell Robinson, is an authority in North Carolina corporate law.

Between them, these law firms have worked on a substantial portion of the major financial services mergers and acquisitions over the past couple of decades.

Asked recently how much SunTrust was spending, a company spokesman said: Theres a big budget for this. We undertook this entire proposal with the realization and expectation that it would involve a commitment of resources, financial and intellectual.

According to a report last week, SunTrust Banks wasnt the only bank in the Southeast to be spurned by Wachovia. BB&T Corp., a neighbor of Wachovias in Winston-Salem, N.C., approached Wachovia twice, the last time in December, when Wachovia was also courting SunTrust and First Union, a BB&T spokesman confirmed last week. A Wachovia spokesman declined to comment. Forbes had first reported BB&Ts interest in Wachovia.

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