South Carolina National, Wachovia Confirm Talks

ATLANTA -- Wachovia Corp. and South Carolina National Corp. confirmed Thursday they are holding preliminary merger discussions.

South Carolina National's stock soared on the news, rising $3 to $28.75 in active trading. The company's stock has risen more than 23% in the past eight days, when speculation about a possible merger with Wachovia surfaced anew.

Wachovia's stock yesterday closed at $54.125, down 37.5 cents.

Stock Swap

Analysts generally agreed that any deal would involve a stock swap because of Wachovia's strong stock price. The company's shares trade at almost twice book value and 13 times earnings, and shareholders are not expected to suffer any dilution of their holdings.

According to Wall Street estimates, South Carolina National, with $7.1 billion in assets, could fetch $31 to $36 a share, or $710 million to $848 million. That translates into a premium of 1.5 to 1.7 times South Carolina National's book value, which is considered respectable given credit quality problems afflicting the region's banks.

Buying South Carolina National would allow Wachovia, based in Winston-Salem, N.C., to establish a major retail presence in a neighboring state. Columbia-based South Carolina National holds 16.3% of all deposits in its home state. (On Tuesday, American Banker incorrectly reported a figure of 42%.)

Analysts said Wachovia, with $26.3 billion in assets, is one of the few banks in the southeast with the financial strength to buy a well-run bank with a dominant market share.

South Carolina National, meanwhile, faces increasing competition from superregionals such as NCNB Corp., Charlotte, C&S/Sovran Corp., Atlanta and Norfolk, Va., and Charlotte-based First Union Corp., all of which operate banks in South Carolina and enjoy economies of scale advantages over South Carolina National.

Analysts believe other Southeastern midsize banks, particularly in Alabama and Virginia, may choose to follow South Carolina National's example and seek alliances with bigger companies.

"But these deals are not going to be done at huge premiums," warned analyst Thomas K. Brown, with Donaldson, Lufkin & Jenrette Inc. in New York. [Graph Omitted]

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