Pity about the price

21 June 2004 By Rob Cox Follow @rob1cox

This deal shows the urge to merge is still strong in the US, and there is a lot of cost to be squeezed from inmarket consolidation. The snag is that the prices fetched by US banks, like Wachovia s target SouthTrust, are higher than can be justified by the cost synergies.

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Wachovia said it agreed to acquire SouthTrust, an Alabamabased regional bank, for $14.3bn in stock, expanding its footprint in the South and into the fastgrowing Texas market. Under terms of the deal, Wachovia will exchange 0.89 shares of its common stock for each share of SouthTrust. Based on Wachovia's closing price of $47.00 on Friday, the deal values SouthTrust at $14.3bn, or $41.83 a share.

The companies said they expect to generate $255 million in annual aftertax expense reductions after a 15month integration period following completion of the merger. These savings equal 3 percent of the companies' current combined annualized expense base, or 36 percent of SouthTrust expenses. The companies expect onetime costs, including mergerrelated and restructuring charges and exit cost purchase accounting adjustments, of $431 million after tax over the integration period, and they estimate that less than $1 billion in deposits would be divested as a condition of regulatory approval.

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Pity about the price

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