|
Wachovia, First Union sue
|
 |
May 23, 2001: 6:20 p.m. ET
Banks file counter suits in N.C. against SunTrust as merger turmoil escalates
|
NEW YORK (CNNfn) - Wachovia Corp. and First Union Corp. each filed lawsuits Wednesday against SunTrust Banks Inc. in a bid to make the bank drop its $14.7 billion unsolicited takeover bid.
Both Wachovia and First Union counter sued in North Carolina state court in an attempt to stop SunTrust from invalidating the stock option agreements entered into by Wachovia and First Union. Wachovia itself is hoping to stop SunTrust from continuing with its hostile bid and using information gained from due diligence which breaches its confidentiality agreement with Wachovia.
Winston-Salem, N.C.-based Wachovia (WB: down $0.26 to $68.00, Research, Estimates) claimed that allegations made by SunTrust in its federal and state lawsuits against the bank were "without merit" and the bank plans to defend itself vigorously.
"It is particularly disturbing that SunTrust would choose to base its litigation strategy on allegations that are plainly false on their face, such as SunTrust's claim that the customary reciprocal options that First Union and Wachovia granted each other do not have a cap," Wachovia said in a statement.
For its part, First Union hopes to stop SunTrust from engaging in unfair and deceptive practices and unlawfully interfering with "prospective economic advantage" that would be gained through its merger with Wachovia.
The lawsuits follow Wachovia's decision on Tuesday to stick with its $12.9 billion merger with rival First Union Corp, again rejecting SunTrust. SunTrust responded by filing suits against Wachovia and First Union.
Wachovia Wednesday urged SunTrust to drop its unsolicited bid. In a letter to SunTrust's board, Wachovia Chairman L.M. Baker Jr. called SunTrust's bid "disruptive," adding "further hostile actions will not serve SunTrust's or Wachovia's best interests."
Atlanta-based SunTrust (STI: up $0.50 to $62.10, Research, Estimates) vowed to take its offer directly to Wachovia shareholders. SunTrust will solicit shareholder votes at a special Wachovia shareholder meeting that will vote on the proposed First Union merger. However, a meeting date has yet to be set, SunTrust spokesman Barry Koling told CNNfn.com
"We don't perceive [our offer] as hostile to the interests of Wachovia shareholders," Koling said.
In its suit in Georgia state court, SunTrust challenged the stock option Wachovia granted First Union which could be valued at a minimum of $780 million or more than $1 billion. SunTrust claims the option, even at the low valuation, "represents an egregious break-up fee relative to the size of the First Union transaction."
In a federal court suit, SunTrust claims that certain of First Union and Wachovia's public disclosures were materially false and misleading.
"While we regret having to resort to litigation, we firmly believe that serious errors in business judgment were committed in connection with Wachovia's proposed transaction with First Union," SunTrust Chairman and CEO L. Phillip Humann said.
The spate of lawsuits cause shares for all three banks to fall Wednesday. Wachovia dropped by 52 cents closing at $65.18, First Union (FTU: up $0.50 to $32.66, Research, Estimates) fell 21 cents to $31.49 and SunTrust (STI: up $0.50 to $62.10, Research, Estimates) tumbled by 71 cents to $61.13.
Another rejection
Wachovia's decision is the Winston-Salem, N.C.-based bank's latest rebuff to SunTrust. The two banks had held merger talks in 1997 and 2000, but never reached an agreement.
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.
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.
Wachovia again rebuffed SunTrust's bid Tuesday, saying Sun Trust has had lackluster results over the past two years and was unable to grow in important business lines such as trust and asset management and retail brokerage. Wachovia noted Wednesday that SunTrust's stock lost 7 percent of its value the day it announced its bid, wiping $1.4 billion off the company's market value.
SunTrust faces an uphill battle to win over Wachovia shareholders, who are probably very confused right now, said analyst David West, of Davenport & Co.
First Union amended its merger agreement to add the dividend options, possibly confusing holders. However, many shareholders will be swayed by the fact that Wachovia's board and management have chosen First Union.
"The ultimate people who will decide this will be Wachovia shareholders," West said. "This will be argued vehemently for both sides, and the shareholders will need time to consider."
On Tuesday, Wachovia presented a thoughtful and reasonable analysis of why a merger with SunTrust would not work, but a personality conflict appears to have been the major deal-breaker, analyst Marni Pont O'Doherty of Keefe Bruyette & Woods Inc. said.
"Wachovia really put forth their best efforts to get the two companies together," O'Doherty said. "But they didn't feel that they would get along well."
SunTrust, which has hired Morgan Stanley as financial advisor and Skadden Arps Slate Meagher & Flom to represent them in their federal and state lawsuits, is not expected to go away quietly. To lead its assault, Wachovia has picked Goldman Sachs and New York-law firms Wachtell Lipton Rosen & Katz and Simpson Thacher & Bartlett.
However, most analysts are skeptical SunTrust will triumph and anticipate the banks will wage a drawn out battle for the next several months.
"The press releases are flying, but is SunTrust any closer to the brass ring? I don't think they are," O'Doherty said. 
|
|
|
|
|
 |
|
