GREENSBORO, N.C. A North Carolina judge this morning upheld complex break-up provisions in the merger agreement between First Union Corp. and Wachovia Corp., delivering a blow to SunTrust Banks Inc.'s efforts to undo the deal.
Judge Ben F. Tennille at North Carolina Business Court in Greensboro left intact the stock-option provisions of the Wachovia-First Union deal, refusing SunTrust's request to throw out the arrangement.
In a hearing Tuesday, SunTrust's lawyers asked Judge Tennille to invalidate the break-up agreement, which gives First Union the right to buy up to 19.9% of Wachovia's stock if Wachovia merges with another bank. First Union could turn around and sell that stock at a profit capped at $780 million. SunTrust had objected to the option, saying amounted to an "egregious" break-up fee that was out of line with fees in other mergers.
But Judge Tennille agreed with another of SunTrust's arguments, declaring "invalid and unenforceable" a clause in the merger agreement that would have prevented Wachovia's board from negotiating a merger with another suitor until after January 2002.
SunTrust chairman, president and chief executive L. Phillip Humann said the ruling would make it easier for Wachovia's board to discuss a merger with SunTrust if shareholders reject the First Union deal on Aug. 3. "The invalidation of the non-termination provision opens the door for us to begin discussions with Wachovia immediately after Wachovia shareholders reject the proposed First Union merger," he said.
Mr. Humann said if SunTrust were to successful negotiate a merger with Wachovia, it would be able to move quickly because of previous work the two companies did when they came within a day of announcing a merger last December. "We believe that we could complete the negotiation of a merger agreement with Wachovia within a very short period of time following the rejection of the First Union merger and could consummate the merger by November 2001."
"We're pleased with the court's statement that the Wachovia shareholders have an unfettered, fully informed opportunity to exercise their right to approve the merger," First Union spokeswoman Mary Eshet said, quoting the ruling.
She said the bank was disappointed that the court threw out the non-termination provision, but said it would not affect the companies' plans for completing the merger by Sept. 1.
The ruling comes as Wachovia, SunTrust and First Union step up their proxy campaigns in advance of Wachovia's Aug. 3 annual meeting. Shareholders will continue voting up through that date on whether to approve the First Union-Wachovia merger.
In the days after SunTrust's offer, the two sides in the merger battle sued one another. The banks' state court suits were consolidated at North Carolina Business Court in Greensboro, a special court established to hear complex business cases.
First Union and Wachovia on April 15 announced a "merger of equals" valued at $13.4 billion, with First Union paying 2 shares of stock for each Wachovia share. The combination, which would take Wachovia's name but be headquartered in Charlotte, would have $330 billion in assets and rank as the largest bank on the East coast and the fourth largest nationwide.
The deal surprised SunTrust executives, who had met their Wachovia counterparts several times in recent years to discuss a combination. Last December, the two companies came within a day of announcing a merger, but Wachovia's L.M. "Bud" Baker Jr. called an 11th-hour halt to the talks.
After First Union and Wachovia announced their Easter Sunday deal, SunTrust sat on the sidelines for about a month, before announcing an unsolicited offer to top First Union's bid and acquire Wachovia. SunTrust's pledged 1.081 shares for each Wachovia share, which at the time was valued at $14.7 billion, or about 16.7% more than First Union's offer.