US banking group Wachovia Corp. will pay $14.3 billion in stock to take over SouthTrust Corp, tapping fast-growth opportunities in the south, the two firms agreed Monday.
Wachovia, the fourth-biggest US bank, and SouthTrust would have a combined $464 billion in assets, 14 million customers and a market capitalisation of $76 billion.
"This transaction gives us clear leadership in a number of attractive, high-growth states and extends our reach into new southeastern and southwestern states," Wachovia chairman, president and chief executive Ken Thompson said in a statement.
"It is also financially attractive for both sets of shareholders."
The deal would create the biggest bank in the southeast, with 18 per cent of deposits, and would provide Wachovia with 'immediate scale' in the rapidly expanding Texas market, the banks said.
Wachovia, headquartered in Charlotte, North Carolina, said it had agreed to exchange 0.89 of a Wachovia share for each share in SouthTrust, based in Birmingham, Alabama.
Based on Wachovia's closing stock price of $47.00 on Friday, the deal would be worth $14.3 billion.
It valued each SouthTrust share at $41.83, 20 per cent more than the closing price Friday.
SouthTrust shares soared $4.57, or 13.13 per cent, to $39.37.
Wachovia stock dropped $1.93, or 4.11 per cent, to $45.07.
The purchase was expected to close in the fourth quarter of this year, subject to approval by regulators and by both companies' shareholders, the firms said.
Up to $1 billion in deposits could be divested as a condition of regulatory approval, the companies said.
One-off costs, including merger-related and restructuring charges, were expected to amount to $431 million, after tax, over the integration period, expected to last 15 months.
But the acquisition would start to boost operating earnings per share, excluding merger-related and restructuring costs, within 30 months of the deal being concluded, Wachovia said.
Costs would be cut by $255 million a year, or three per cent of expenses, after the integration.
The merger also would boost excess capital by $1.7 billion, which Wachovia planned to use to repurchase shares.
"This whole industry is continually consolidating," SouthTrust chairman and chief executive Wallace Malone said in a conference call.
"I have to ask myself: 'Are we doing the best for shareholders?" he said. "The numbers are pretty doggone clear." Only a month ago, shareholders approved JP Morgan Chase's acquisition of Bank One, a deal valued at some 58 billion dollars that will create the second-largest US banking company behind Citigroup.
New York-based credit rating agency Standard and Poor's affirmed its A long-term and A-1 short term ratings on Wachovia.
The agency said it was considering upgrading SouthTrust's A-minus long-term rating to be on a par with Wachovia after any merger. It also affirmed SouthTrust's A-1 rating for short-term debt.
"Strategically, the addition of SouthTrust enriches Wachovia's southeastern regional banking franchise," Standard and Poor's said in a statement.
"Beyond territorial expansion, SouthTrust does not significantly alter Wachovia's business profile or asset mix. On the positive side, the expansion of Wachovia's traditional commercial banking business should lessen the corporation's dependence on market-sensitive revenues, a limiting factor on the rating."
-- AFP