Continuing its selective buying in Florida, Wachovia Corp. said Monday that it has agreed to purchase Republic Security Financial Corp. of West Palm Beach for $344 million in stock.
Winston-Salem, N.C.-based Wachovia has been battling for market share in Florida with home-state rivals Bank of America Corp. and First Union Corp., both of Charlotte. Republic Security, which has assets of $3.4 billion and deposits of $2 billion, would be its largest purchase in the state and put it squarely behind Bank of America and First Union in the No. 3 spot in deposits in affluent Palm Beach County.
Wachovia has $1.7 billion of assets in Florida, $1 billion of deposits, and 38 branches. Republic has 99 branches.
This is a fortuitous opportunity to build on the presence we have in Florida, said Stanhope A. Kelly, senior executive vice president of Wachovia. We do not feel we have to have as many offices as our competitors in Florida. It is a very competitive market.
Republic Security specializes in asset management, a business that has been identified as a key growth area for many banks, including Wachovia. Republic also specializes in commercial banking.
This makes perfect sense, said Marni Pont ODoherty of Keefe, Bruyette & Woods Inc. They want to be in key markets where they can sell through on the wealth and asset management side. This will absolutely help them do it.
Wachovia began its drive into Florida in 1997, after the former NationsBank announced its blockbuster deal to buy Barnett Banks Inc., then the states biggest financial institution. In November of that year Wachovia bought 1st United Bancorp of Boca Raton, and in spring 1998 it bought Ameribank Bancshares of Hollywood.
This June, Wachovia completed its acquisition of Commerce National Corp., a $181 million-asset banking company based in Winter Park. The company expects to close its deal to buy DavisBaldwin Inc., a Tampa-based insurance agency, today.
Aside from the considerable boost in Palm Beach, Wachovia would extend its reach, with 25 branches in Broward County and 11 in Dade County.
The agreement was worked out quickly after Rudy E. Schupp, chairman, chief executive officer, and president of Republic Security, brought the idea to Wachovia. Mr. Schupp, who is to oversee the merger integration as Wachovias chairman of Florida banking, said Monday that the acquisition was the obvious outcome for Republic, which was struggling with a depressed stock price.
What really drove the decision was strategy. To be able to remain relevant at our size is very difficult, Mr. Schupp said. We were expected to merge at some point. Its the natural culmination of years of building this business. We had to find a big umbrella to get under.
Mr. Kelly would not estimate how many jobs would be lost as a result of the deal. Cost savings would fall somewhere between 25% and 40% of the two companies combined expense base.
The purchase should not dampen earnings in 2001 and would add marginally to 2002 profits, Wachovia chief financial officer Robert McCoy said. We basically view this as break-even.
One analyst questioned the timing, citing Wachovias credit quality problems. Its nonperforming assets rose 55% in the third quarter.
But Mr. McCoy said difficulties in the corporate bank are irrelevant.
It would be silly to turn our back on an opportunity such as this, he said. We are not going to put our head in the sand because of the credit cycle. We cant turn our back on the retail business. If another deal like this came along, wed certainly take a look at it.
The deal is set to close in the first quarter and calls for Wachovia to exchange 0.1322 of its shares for each share of Republic. On the basis of Wachovias closing stock price on Friday of $52.9375, the swap would be $7 per share, 1.65 times Republics book value.
Wachovia said it would incur $8 million in charges.
Wachovias shares ended Monday at $54.9375 up $2.25. Republic closed at $6.78, up 84 cents. Sandler ONeill advised Republic in the deal; Wachovia used internal advisers.
From Our Archive:
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- Wachovia To Open 9 Offices, Renovate 31 In Florida Push - December 19, 1999