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Wachovia keeps First Union
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May 22, 2001: 7:50 p.m. ET
Company rejects SunTrust again, SunTrust to sue both banks
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NEW YORK (CNNfn) - The board of Wachovia Corp. decided Tuesday to stay with its $12.87 billion merger agreement with First Union Corp., again rejecting suitor SunTrust Banks Inc., which will now proceed with a hostile bid and take legal action.
Winston-Salem, N.C.-based Wachovia (WB: Research, Estimates) said Tuesday that it will amend its merger agreement with First Union to provide shareholders a new dividend choice, according to a statement on Wachovia's Web site.
In response, SunTrust said it "will continue with its plan to solicit Wachovia shareholders to vote against the low-premium transaction proposed by First Union Corp."
SunTrust also said it will sue both companies in Georgia state court, challenging the stock option Wachovia granted to First Union and claiming public disclosures by the two banks relating to the deal "are materially false and misleading in several important respects."
A spokeswoman for First Union told CNNfn.com the company has no formal statement regarding litigation, but First Union "feels comfortable" with its agreement with Wachovia and "looks forward to going forward."
Wachovia shareholders now have two board-approved choices that will guarantee a dividend payment at Wachovia's level of $2.40 a year. The first is a one-time 48 cent payment plus a new Wachovia dividend to be set at an anticipated annual rate of $1.92 an existing Wachovia share.
The second option will give Wachovia shareholdings an ongoing cash payment equal to Wachovia's $2.40 a share annual rate until the new Wachovia dividend payment meets or exceeds that rate per existing Wachovia share.
Regulators have to endorse the deal which must then be approved by Wachovia and First Union (FTU: Research, Estimates) shareholders.
"We are confident that shareholders will agree when they look at the facts," said First Union CEO Ken Thompson in a statement. "We believe that the SunTrust proposal simply won't work, and we are glad that the board has validated our view."
SunTrust rejected again
"It is difficult to understand how the Wachovia Board can conclude that our offer is not superior to First Union's transaction," said L. Phillip Humann, chairman, president and CEO of SunTrust, in a statement.
In April, Charlotte, N.C.-based First Union offered to buy Wachovia for about $13 billion in stock. At that time, Wachovia shareholders were slated to receive a special dividend of 48 cents a share prior to the deal's completion. In May, SunTrust Banks launched an unsolicited $14.7 billion all-stock bid for Wachovia.
Wachovia again rebuffed SunTrust's bid Tuesday because the bank has produced lackluster results over the past two years, Wachovia Chairman and CEO L.M. Baker Jr. said in a statement.
"A combination with SunTrust could act as a drag on Wachovia's expected future earnings growth," Baker said.
Baker also cited SunTrust's inability to grow in important business lines such as trust and asset management and retail brokerage.
Since announcing its hostile offer earlier this month, SunTrust's stock has dropped and its offer, which initially promised a 17 percent premium compared to First Union, fell to just 5 percent.
Atlanta-based SunTrust (STI: Research, Estimates) and Wachovia were engaged in merger discussions that began last November, but talks fell apart in December over differences in each firm's wealth management businesses.
"Clearly, SunTrust's stock price cannot support an aggressive hostile transaction," Baker said.
Wachovia's board had already unanimously approved First Union's offer but met Tuesday to consider the hostile proposal from SunTrust.
Shares of Wachovia rose 55 cents to $65.70 Tuesday, while SunTrust rose 80 cents to $61.84 and First Union jumped 70 cents to $31.70. 
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