Wachovia to Acquire S.C. National Corp.

Stock Swap Valued at $835 Million

In its first major acquisition in five years, Wachovia Corp. will buy South Carolina National Corp. in a stock swap valued at $835 million.

Wachovia, based in Winston-Salem, N.C., announced Monday it had signed a definitive merger agreement, giving the company its long-desired entree into South Carolina.

More Muscle for Wachovia

The merger would make Wachovia the nation's 17th-largest banking company ranked by assets, up from 29th place at year-end 1990. Wachovia has $25.6 billion in assets, and South Carolina National, based in Columbia, has $7.1 billion.

The merger, by far the largest banking deal announced this year, is expected to be completed by the end of this year.

Wachovia chairman John G. Medlin Jr. said he first held informal merger discussions with South Carolina National in the mid-1980s. The sporadic discussions did not develop into serious negotiations until last week, he said.

South Carolina National's stock started rising earlier this month on merger speculation. Its shares climbed another $2.50 Monday, closing at $31 on volume that was 10 times heavier than normal. Wachovia's shares slipped $2.375, to $50.25, on normal volume.

Mr. Medlin said that the acquisition, which will be accounted for as a pooling of interests, will not not dilute per-share earnings for existing shareholders in the first year after the merger is completed.

Coordination of Reserves

Wachovia's announcement said South Carolina National had agreed to bring its loan-loss reserve practices in line with Wachovia's.

Gerald J. O'Meara Jr., banking analyst with the Robinson-Humphrey Co. in Atlanta, said he interpreted that to mean that the South Carolina bank, which has been struggling recently with credit quality problems, would accelerate its loan writedowns in the fourth quarter, clearing the way for its 1992 earnings to return to their historically high levels. That would avoid any earnings dilution for the combined company.

Wachovia will pay about 1.7 times the book value of South Carolina National, a relatively high multiple considering the depressed value of many bank stocks. The indicated per-share price tag of $35.52 works out to a hefty 12.5 times annual earnings.

Wachovia will exchange 0.675 share of its stock for each share of South Carolina National. The value of the transaction will be determined by Wachovia's price when the deal closes.

In its last major purchase, of First Atlanta Corp. in 1985, Wachovia paid two times book value. While it will pay a lower premium in this deal, analysts agreed Monday that the strength of Wachovia's stock price made the offer attractive.

"South Carolina National's shareholders should be proud of what their management has done for them," said Henry J. Coffey Jr., banking analyst with J.C. Bradford & Co., Nashville.

Thomas K. Brown, with Donaldson, Lufkin & Jenrette Securities Corp. in New York, pointed out that shareholders of acquired companies these days, compared with the mid-1980s, are likely to realize most of their gains through appreciation of the acquirer's stock, rather than initial premiums. "That's the difference between round two of interstate banking and round one," Mr. Brown said.

Analysts also agreed that Wachovia should realize major benefits over time from controlling a dominant market share in South Carolina. South Carolina National holds 16.3% of all deposits in the state, compared to 10.9% for C&S/Sovran Corp., which is based in Atlanta and Norfolk, Va. and 8.3% for Charlotte-based NCNB Corp.

Closing a Gap

Mr. Medlin said South Carolina National fills a gap in Wachovia's current franchise of North Carolina and Georgia. "In terms of efficient use of technology and many other aspects of our business, having a gap in South Carolina was really a disadvantage," Mr. Medlin said.

Wachovia, which as a reputation for conservative lending practices, has also been one of the southeast's most careful acquirers. While competitors such as NCNB Corp. and First Union Corp. frantically bought up other banks in the late 1980s, Wachovia kept its powder dry after it bought First Atlanta in Dec. 1985, except for purchasing a few small banks and thrifts in Georgia.

In the case of both First Atlanta and South Carolina National, Wachovia has sought to buy good, well-run banks with strong market share. As a result, Wachovia remained the smallest southeastern superregional, but it has enjoyed the best credit quality and the strongest capitalization.

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