| Filed by Wachovia Corporation pursuant to Rule 425 under the Securities Act of 1933, as amended, and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934, as amended
Subject Company: A.G. Edwards, Inc.
Commission File No.: 1-8527
Date: May 31, 2007 |
This filing may contain certain forward-looking statements with respect to each of Wachovia Corporation (“Wachovia”) and A.G. Edwards, Inc. (“A.G. Edwards”) and the combined company following the proposed merger between Wachovia and A.G. Edwards (the “Merger”), as well as the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without limitation, (i) statements relating to the benefits of the Merger, including future financial and operating results, cost savings, enhanced revenues and the accretion/dilution to reported earnings that may be realized from the Merger, (ii) statements relating to the benefits of the merger between Wachovia and Golden West Financial Corporation (“Golden West”) completed on October 1, 2006 (the “Golden West Merger”), including future financial and operating results, cost savings, enhanced revenues and the accretion to reported earnings that may be realized from the Golden West Merger, (iii) statements regarding certain of Wachovia’s and/or A.G. Edwards’ goals and expectations with respect to earnings, earnings per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements relating to estimates of Wachovia’s credit quality trends, and (iv) statements preceded by, followed by or that include the words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, “projects”, “outlook” or similar expressions. These statements are based upon the current beliefs and expectations of Wachovia’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond Wachovia’s control).
The following factors, among others, could cause Wachovia’s financial performance to differ materially from that expressed in such forward-looking statements: (1) the risk that the businesses of Wachovia and A.G. Edwards in connection with the Merger or the businesses of Wachovia and Golden West in connection with the Golden West Merger will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) the risk that expected revenue
synergies and cost savings from the Merger or the Golden West Merger may not be fully realized or realized within the expected time frame; (3) the risk that revenues following the Merger or the Golden West Merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following the Merger or the Golden West Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; (5) the inability to obtain governmental approvals of the Merger on the proposed terms and schedule; (6) the failure of A.G. Edwards’ shareholders to approve the Merger; (7) risk that the strength of the United States economy in general and the strength of the local economies in which Wachovia and/or A.G. Edwards conducts operations may be different than expected resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on Wachovia’s loan portfolio and allowance for loan losses; (8) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (9) potential or actual litigation; (10) inflation, interest rate, market and monetary fluctuations; and (11) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on Wachovia’s and A.G. Edwards’ brokerage and capital markets activities. Additional factors that could cause Wachovia’s and A.G. Edwards’ results to differ materially from those described in the forward-looking statements can be found in Wachovia’s and A.G. Edwards’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning Wachovia or the proposed Merger or other matters and attributable to Wachovia or A.G. Edwards or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Wachovia and A.G. Edwards do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this filing.
The proposed Merger will be submitted to A.G. Edwards’ shareholders for their consideration. Wachovia will file a registration statement with the SEC, which will include a proxy statement/prospectus regarding the proposed Merger. A.G. Edwards’ shareholders are urged to read the registration statement and the proxy statement/prospectus when they become available, as well as any other relevant documents concerning the proposed Merger filed with the SEC (and any amendments or supplements to those documents), because they will contain important information. You will be able to obtain a free copy of the registration statement and the proxy statement/prospectus, as well as other filings containing information about Wachovia and A.G. Edwards, at the SEC’s website (http://www.sec.gov) and at the companies’ respective websites, www.wachovia.com and www.agedwards.com. Copies of the proxy statement/prospectus and the SEC filings that will be incorporated by reference in the proxy statement/prospectus can also be obtained, free of charge, by directing a request to Wachovia Corporation, Investor Relations, One Wachovia Center, 301 South College Street, Charlotte, NC 28288-0206, (704)-383-0798; or to A.G. Edwards, Inc., Investor Relations, One North Jefferson Avenue, St. Louis, MO 63103, (314) 955-3000.
Wachovia and A.G. Edwards, and their respective directors and executive officers, may be deemed to be participants in the solicitation of proxies from the
shareholders of A.G. Edwards in connection with the proposed Merger. Information about the directors and executive officers of Wachovia is set forth in the proxy statement for Wachovia’s 2007 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 9, 2007. Information about the directors and executive officers of A.G. Edwards is set forth in the proxy statement for A.G. Edwards’ 2007 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on May 15, 2007. Additional information regarding the interests of those participants and other persons who may be deemed participants in the Merger may be obtained by reading the proxy statement/prospectus regarding the proposed Merger when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.
THE FOLLOWING ARE MATERIALS USED IN A PRESENTATION HELD ON MAY 31, 2007 REGARDING THE MERGER
Wachovia Logo Here A.G. Edwards Logo
Here
Retail Brokerage
Defining the End Game
Presentation to Investors
May 31, 2007
The retail brokerage landscape
Brokers currently capture 57% of $20 trillion in U.S. investable assets
Unprecedented opportunity to capture and capitalize on substantial “money
in motion”
- $577 billion in 2007 retirement and intergenerational transfers are projected
to grow at a 20% CAGR to $950 billion+ by 2010
Favorable customer dynamics and demographic trends driving growth
- Affluent households growing as a percentage of total U.S. households
55% use a full-service broker for advice
Expanded distribution network provides additional opportunities to:
- Leverage investment banking origination and retail brokerage distribution
strengths to provide new products for investors
- Increase the cross-sell of banking products to brokerage customers
Enhanced scale improves overhead efficiency and enables additional
investment in the brokerage platform driving an improved advisor and client
experience
Source: SIA, Cerulli Associates, 2006.
Page 1 - 5046, Retail Brokerage; Defining the End Game
Highlights
Strategically Compelling
Rare opportunity to create the second largest retail brokerage firm in the U.S.
- A.G. Edwards is the largest remaining independent brokerage
U.S. market share of brokerage revenues increases to 14% within the Top 50 MSAs
- Strengthens market penetration in 48 of the top 50 MSAs
- Market share in 10 fastest-growing MSAs nearly doubles from 7% to 12%
Expanded distribution improves ability to capitalize on baby boomer retirement opportunity
and drive increased sales of banking products and new investment products developed by
investment banking
Complements and accelerates Wachovia branding for Western and Texas banking expansion
Financially Attractive
IRR of 24%
Accretive to cash and operating EPS in 2008
$2.0 billion in excess capital available at close
Improves mix of faster growing market-related revenues
Enhanced scale allows for improved efficiencies with continued reinvestment
Low Risk Transaction
Complementary customer and broker-friendly sales and service models
Common systems: both companies operating on Thomson Beta system
Integration expertise demonstrated by Wachovia Securities/Prudential Securities joint venture
Senior management team to be composed of members from both organizations
Page 2 - 5046, Retail Brokerage; Defining the End Game
Transaction summary
Consideration $6.9 billion*, 60% stock and 40% cash
Excess Capital $2.0 billion available at closing
Brand Wachovia Securities
Brokerage Headquarters St. Louis, MO
Brokerage Chairman Robert Bagby
Brokerage CEO Danny Ludeman
Earnings Impact $0.02 accretive to 2008 cash EPS and
$0.05 accretive to 2009 cash EPS
IRR 24%
Timing Expected closing 4Q07
Approvals Normal regulatory approvals including Hart-Scott-Rodino and NASD and A.G. Edwards shareholder
approval
Breakup Fee $270 million termination fee payable to Wachovia in certain circumstances
*Based on Wachovia’s closing stock price on May 30, 2007.
Page 3 - 5046, Retail Brokerage; Defining the End Game
Focused, experienced management team
Capital Management Group
David Carroll (WB)
Wachovia Securities*
Robert Bagby, Chairman (AGE)
Danny Ludeman, CEO (WB)
Merger Integration
Steering Committee
COO*
Doug Kelly (AGE)
CFO*
David Hopkins (WB)
Private Client Group*
Jim Hays (WB)
Financial Services Group*
Brand Meyer (WB)
Peter Miller (AGE)
Balance of Senior Leaders
To Be Announced By June 16, 2007
*Post consummation.
Page 4—5046, Retail Brokerage; Defining the End Game
Similar cultures and entrepreneurial focus provide upside opportunity
Similar customer and advisor-focused models
– Both firms have strong regional firm histories with strong emphasis on
the client experience
– Entrepreneurial cultures and advisor loyalty are the foundations of success
Senior management team experienced at driving both organic and
acquired growth
Market strategy focused on Top 50 MSAs coupled with strong local
market presence
– Well positioned in key affluent markets and retirement cities
Opportunities to leverage one another’s respective strengths
– Wachovia: fee-based planning, banking product offerings including FDIC
deposit sweeps and additional investment products developed through CIB
– A.G. Edwards: advisor training and “best-in-class” customer and advisor
loyalty practices
Page 5—5046, Retail Brokerage; Defining the End Game
Combined brokerage firm statistics
Combined
Revenues – LTM ($MM) $ 5,250 $ 3,110 $ 8,360
Client Assets ($ Billions) $ 773 $ 374 $ 1,147
Headquarters Richmond, VA St. Louis, MO St. Louis, MO
Distribution
Brokerage Offices 768 744 1,512
Series 7 Reg. Reps (RR) 8,166 6,618 14,784
Total Reg. Reps 10,687* 6,618 17,305
# of Employees 15,708 15,338 31,046
Support Staff to RR 0.99 1.25** 1.07**
FDIC Penetration*** 84% 20% 58%
* Includes Series 6 licensed representatives that are General Banking employees. **Excludes AGE’s capital markets employees.
***FDIC sweep balances divided by total eligible sweep balances.
Page 6—5046, Retail Brokerage; Defining the End Game
Creates 2nd largest retail brokerage firm
($ in billions)
Net Series 7
Revenue Client Registered
Major Players(LTM) Assets Reps
Merrill Lynch (GPC)* $ 11.9 $ 1,503 15,930
Wachovia / A.G. Edwards 8.4 (#2) 1,147 (#3) 14,784 (#2)
Citigroup (Smith Barney) 8.4 1,277 13,009
Morgan Stanley (GWM)** 5.6 690 7,993
Wachovia Securities 5.3 773 8,166
UBS (Wealth Mgt. US) 4.9 773 7,974
A.G. Edwards 3.1 374 6,618
Raymond James 1.8 198 4,650
LTM = last twelve months, data as of 3/31/07.
*Merrill’s client assets exclude $145B in non-US assets. Merrill’s net revenue represents Global Private Client (GPC) revenue only and excludes Investment Management revenue (i.e. Blackrock JV and other interests).
**Quarter ended 2/28/07. Excludes investment banking revenue.
Page 7—5046, Retail Brokerage; Defining the End Game
Deepens leading market share and
complements banking distribution
Estimated combined market share of 14%*
Deepens market
penetration in 48 of Top 50
MSAs
– Strength in key
affluent markets and
retirement cities
25% of AGE revenues
from CA, FL and TX
Market share increases to
12% in 10 fastest-growing
MSAs**
Complementary major and
local markets strategy
– WB: 53% of branches and
65% of advisors in Top 50
MSAs
– AGE: <50% of branches
and >50% of advisors in
Top 50 MSAs
A.G. Edwards
Wachovia
Source: McLagan, 2006 data.
*Market share estimate excludes WB bank channel (ISG) and is based on the percentage share of retail brokerage revenues in the Top 50 MSAs.
**5-year projected population growth estimates. Source: U.S. Census Bureau and Wachovia Securities Economics.
Page 8—5046, Retail Brokerage; Defining the End Game
Leveraging proven success: WB Securities’
momentum driven by consistent focus on key strategies
Annualized Revenue per Series 7 Reg Rep
($ thousands)
$ 688
$ 620
$ 557
$ 504 $ 507
2003 2004 2005 2006 1Q07
Recurring Revenue as a % of
Total Revenue
61% 60%
58%
50%
39%
2003 2004 2005 2006 1Q07
FDIC Sweep Deposit Balances*
($ billions)
$ 30 $ 31 $ 31
$ 28
$ 15
2003 2004 2005 2006 1Q07
Total Broker Client Assets
($ billions)
$ 760 $ 773
$ 653 $ 684
$ 603
2003 2004 2005 2006 1Q07
*2004 – 2005 originally reported balances.
Page 9—5046, Retail Brokerage; Defining the End Game
Leveraging proven success: WB Securities’
momentum driven by consistent focus on key strategies
Loan Production
($ millions)
$ 3,895
$ 2,772
$ 1,917
$ 1,115
2004 2005 2006 1Q07
Deposit Production – Bank Channel
($ millions)
$ 2,068
$1,343
$ 909
$ 556
2004 2005 2006 1Q07
Managed Account Assets /
Total Client Assets
18% 18%
16%
13%
11%
2003 2004 2005 2006 1Q07
Pre-Tax Margin*
29%
25%
18%
15% 14%
2003 2004 2005 2006 1Q07
*Pre-Tax Margin excluding merger-related and restructuring expense.
Page 10—5046, Retail Brokerage; Defining the End Game
Significant upside opportunity exists to leverage Wachovia Securities’ momentum
Annualized Revenue / Series 7 Registered Rep*
($ thousands)
$ 703 $ 688
$ 613
$ 522
A.G. Edwards Combined Peer Group Avg WB Securities
Client Assets** / Series 7 Reg. Rep.
($ millions)
$ 81 $ 80
$ 72
$ 57
A.G. Edwards Combined Peer Group Avg WB Securities
Fee Based Assets / Client Assets
22%
18%
16%
12%
A.G. Edwards Combined Peer Group Avg WB Securities
Pre-Tax Margin***
27%
23%
17% 17%
A.G. Edwards Combined Peer Group Avg WB Securities
Last twelve months of reported results. Peer group average composed of Citigroup (Smith Barney), Merrill Lynch (GPC) , Morgan Stanley (GWM) , Raymond James, UBS (US Wealth Mgmt), A.G. Edwards and Wachovia Retail Brokerage.
*Last reported quarter’s annualized revenues divided by average Series 7 registered representatives. **Client assets excluding CCG (clearing assets).
**Pre-tax margin excludes merger-related and restructuring expenses for WB.
Page 11—5046, Retail Brokerage; Defining the End Game
Wachovia has proven brokerage integration experience
Merger/acquisition history from 1998 to present
– Wheat First Butcher Singer – JW Genesis
– EVEREN Capital – IJL Wachovia
– First Albany Co. – Wachovia/Prudential Joint Venture
Delivered on goals stated in WB/Prudential Investor Presentation*
Expense Synergies
Stated Goal: $364 million pre-tax
$364 $364+
Announced Actual
One-Time Charges
Stated Goal: $1,868 million pre-tax
$1,868 $1,689 $1,492
Announced Revised Actual
*Projected goals at transaction announcement on February 19, 2003 and assumed a marginal tax rate of 39.6%.
Page 12—5046, Retail Brokerage; Defining the End Game
Financial assumptions
Fixed Exchange Ratio 0.9844 WB shares plus $35.80 of cash per AGE share
EPS Assumptions/Growth First Call estimates for 2007 and 2008*, and First Call long-term EPS growth rates of 8.9% for WB and 11.5% for A.G. Edwards thereafter
Expense Efficiencies Estimated $395 million after-tax
One-Time Costs Estimated $860 million after-tax
Net Revenue Assumption Assumes impact of broker attrition largely offset by revenue benefits from FDIC sweep balances and improved asset mix
Targeted Capital Ratios Tangible:** 4.7% (estimated 4.7% at close) Leverage: 6.0% ( > 6.0% at close)
Other Assumes no capital contribution by Prudential (see pp 26)
*Assumes calendar year convention of earnings estimates, see page 14 for additional details. **Tangible common equity divided by tangible assets, excluding FAS 115/133/138.
Page 13—5046, Retail Brokerage; Defining the End Game
Pro forma earnings
($ in millions after-tax) 2008E 2009E
Wachovia Cash Earnings* $ 10,142 $ 10,639
A.G. Edwards Cash Earnings* 390 435
Expense Efficiencies net of Funding and other Costs 136 220
Combined Cash Earnings* $ 10,669 $ 11,294
New and existing DBI & other Intangible Amortization(207)(144)
Combined Operating Earnings** $ 10,462 $ 11,149
One-time Transaction Expenses***(508)(251)
Combined GAAP Earnings $ 9,953 $ 10,899
Not a projection.
*Illustrates net income applicable to common shareholders before merger-related and restructuring expenses, intangible amortization and preferred dividends; assumes WB 2008 First Call consensus estimates of $5.40 per share and consensus 5-year operating EPS growth expectations of 8.9%; assumes AGE First Call consensus estimates of $4.64 per share for 2008 x 2/12s plus $5.11 per share x 10/12s for 2009 and AGE consensus 5-year operating EPS growth expectation of 11.5%. Assumes all excess capital above targeted ratios used to fund cash portion of merger consideration. **Illustrates net income applicable to common shareholders before merger-related and restructuring expenses and preferred dividends.
***One-time expenses associated with prior transactions expected to be $58 million after-tax in 2008.
Page 14—5046, Retail Brokerage; Defining the End Game
Pro forma EPS and IRR
(share count in millions) 2008E 2009E
Combined Average Fully Diluted Shares* 1,935 1,884
Combined Cash EPS** $ 5.51 $ 5.99
Wachovia Implied Consensus Cash EPS*** $ 5.49 $ 5.94
Wachovia Accretion / (Dilution) $ 0.02 $ 0.05
Combined Operating EPS**** $ 5.41 $ 5.92
Wachovia Consensus Operating EPS $ 5.40 $ 5.88
Wachovia Accretion / (Dilution) $ 0.01 $ 0.04
IRR (See Appendix page 24) = 24%
Not a projection.
*Assumes average fully diluted share count for WB stand-alone of 1,847 million in 2008 and 1,790 million in 2009 and AGE stand-alone of 78 million (76 million WB shares at 0.9844 exchange ratio), using assumptions on pages 13 and 14. **Illustrates combined net income applicable to common shareholders before merger-related and restructuring expenses, intangible amortization and preferred dividends, using assumptions on page 13 and 14.
***Based on First Call operating EPS consensus estimates as of May 30, 2007 excluding intangible amortization.
****Illustrates combined net income applicable to common shareholders before merger-related and restructuring expenses and preferred dividends, using assumptions on pages 13 and 14.
See pages 13-14 for additional assumptions.
Page 15—5046, Retail Brokerage; Defining the End Game
Achievable expense efficiencies assumed
Expect annual expense efficiencies of $395 million after-tax by 2009
– 20% of Combined expense base excluding RR compensation*
– Assumes an estimated 25% of Combined non-Series 7 Registered Rep. positions will be reduced
– Assumes up to a net 230 brokerage office consolidations over a 3 year period
($ in millions) Pre-tax After-tax**
Personnel $ 336 $ 206
Occupancy 47 29
Technology 39 24
Other 223 136
Total $ 645 $ 395
Expect to realize approximately 50% in 2008 and 100% in 2009
*Wachovia’s 2006 Retail Brokerage sub-segment expenses excluding Series 7 Registered Representative compensation plus A.G. Edwards’ 2007 fiscal year expenses excluding Series 7 Registered Representative compensation.
**Assumes marginal tax rate of 38.5%.
Page 16—5046, Retail Brokerage; Defining the End Game
One-time merger-related costs
Expect total one-time cash costs of $860 million after-tax
Exit Cost
($ in millions) P&L PAAs Total*
Personnel $ 426 $ 67 $ 493
Technology, Occupancy and Equip 202 43 245
Other 112 10 122
Total $ 740 $ 120 $ 860
Estimated recognition of cash costs
–$ 740 million after-tax merger-related and restructuring expenses through P&L: assumed 5% in 2007, 61% in 2008 and 34% in 2009
–$ 120 million in exit cost PAAs to goodwill: assumed 5% in 2007 and 95% in 2008
Fair market value adjustments and standard purchase accounting adjustments
*Total pre-tax one-time cash charges of $1,400 million: $1,204 million pre-tax merger-related/restructuring expenses through P&L, $196 million pre-tax PAAs to goodwill reflecting integration costs relating to A.G. Edwards operations. Assumes marginal tax rate of 38.5%.
Page 17—5046, Retail Brokerage; Defining the End Game
In summary
Strategically Compelling
Rare opportunity to create the second largest retail brokerage firm in the U.S.
– A.G. Edwards is the largest remaining independent brokerage
U.S. market share of brokerage revenues increases to 14% within the Top 50 MSAs
– Strengthens market penetration in 48 of the top 50 MSAs
– Market share in 10 fastest-growing MSAs nearly doubles from 7% to 12%
Expanded distribution improves ability to capitalize on baby boomer retirement opportunity
and drive increased sales of banking products and new investment products developed by
investment banking
Complements and accelerates Wachovia branding for Western and Texas banking expansion
Financially Attractive
IRR of 24%
Accretive to cash and operating EPS in 2008
$2.0 billion in excess capital available at close
Improves mix of faster growing market-related revenues
Enhanced scale allows for improved efficiencies with continued reinvestment
Low Risk Transaction
Complementary customer and broker-friendly sales and service models
Common systems: both companies operating on Thomson Beta system
Integration expertise demonstrated by Wachovia Securities/Prudential Securities joint venture
Senior management team to be composed of members from both organizations
Page 18—5046, Retail Brokerage; Defining the End Game
Appendix
A.G. Edwards overview
Retail brokerage industry peer comps
Retail brokerage industry: Growing demand for advice
Wachovia Securities Retail Brokerage: Strategies
to drive revenue growth
Merger integration timeline
Merger project office
Wachovia Securities joint venture: Prudential options
IRR detail
Page 19—5046, Retail Brokerage; Defining the End Game
A.G. Edwards overview
Company snapshot
Headquartered in St. Louis, MO
A.G. Edwards has 15,338 employees
including 6,618 FAs located in
744 offices
$374 billion in client assets
Primary Business Lines:
– Securities and commodities brokerage
– Asset management
– Investment banking
– Trust services
– Retirement services
– Insurance product sales
A.G. Edwards Trust, a federally
chartered savings bank, provides
investment advisory, portfolio
management, and trust services
Operates small securities broker
dealer in London and four private
equity partnerships
Source: Public Filings. 2007 year ended February 28, 2007.
2007 Revenue Breakdown
41%
7%
9%
33%
3%
7%
Asset Management
& Service Fees
Principal
Transactions
Investment
Banking
Net Interest
Commissions
Other
Page 20—5046, Retail Brokerage; Defining the End Game
Retail brokerage industry peer comps
Smith UBS Wealth Raymond Wachovia Pro Forma Merrill Barney Morgan Management James Securities A.G. Edwards Combined Lynch*(Citigroup) Stanley USA Financial
# of Series 7 Registered Reps 8,166 6,618 14,784 15,930 13,009 7,993 7,974 4,650 Client Assets ($B) $773 $374 $1,147 $1,503 $1,277 $690 $774 $198 Assets/Registered Rep ($MM)* $80 $57 $72 $108 $98 $87 $98 $42 Net Revenues - LTM ($MM) $5,250 $3,110 $8,360 $12,109 $8,419 $5,592 $4,913 $1,810 Annualized Revenues/R.R. (000’s)*** $688 $522 $613 $790 $687 $748 $660 $405 Pre-Tax income - LTM ($MM) $1,405 $521 $1,926 $2,664 $1,797 $688 $465 $199 Pre-Tax Margin - LTM 27% 17% 23% 22% 21% 12% 9% 11% Full Service Branches 768 744 1,512 630 638 451 457 1,235 Leverage**** 6.1% 43% 4% 4% 3% 2% 14%
LTM = last twelve months of reported results.
*Excludes $145B in non-US assets. Net revenues represent GPC revenue only. **Wachovia Securities excludes CCG (clearing) assets.
**Annualized revenues per registered representative = annualized revenue / average of current and prior quarter registered rep. head count. ***Total Company reported leverage ratios, defined as tangible equity/average tangible assets.
Page 21—5046, Retail Brokerage; Defining the End Game
Retail brokerage industry
Growing demand for advice
Aging demographics point to a growing demand for advice
Demand for Advice Increases with Age
(Type of Brokerage Firm Used)
Seniors 23.20% 58.60% 18.20% Boomers 33.40% 43.90% 22.70% Gen X 39.20% 41.30% 19.50% Gen Y 43.90% 44.40% 11.60%
0% 20% 40% 60% 80% 100% Just a Direct Firm Just a Full Service Firm Both
Source: Forrester Research, 2006.
Preferred Provider of Advice for Affluent Client
55% 55% 55% Wachovia Securities spans
| 4 |
|
of the most preferred Managing Finances sources for affluent advice Planning for Retirement |
45%
35%
23% 25% 19% 17% 17%17% 15% 15% 11%12%
9% 10% 9% 9%
6% 4% 5% 4% 5%
5% 2%
-5% No Help Other Insurance Discount Stockbroker Indep. FA Full Service Bank/Trust Attorney Accountant Co. Broker FA Co.
Source: SIA, Cerulli Associates, 2006.
Page 22—5046, Retail Brokerage; Defining the End Game
Wachovia Securities Retail Brokerage
Strategies to drive revenue growth
Attract, retain and excite a talented and diverse workforce
Improve broker productivity
– New client acquisition
– Cross-sell strategies
Provide an “Envision” investment plan to every affluent client
Grow managed assets and recurring revenues
Focus on customer service
Cross-enterprise product sales
Become the top U.S. Brokerage Firm
in financial advisor and client loyalty
Maintain a pre-tax margin in excess of 20%
GOALS:
Page 23—5046, Retail Brokerage; Defining the End Game
Merger integration timeline
Golden West integration unaffected
2Q 2007 3Q 2007 4Q 2007 2008 2009
Golden
West
Integration
A.G.
Edwards
Integration
1st regional
deposit
conversion
Convert
payroll and
systems
Complete
Western &
Central deposit
conversions
Systems
testing
begins
Brokerage
system
conversion
Brokerage
office updates/
consolidations
Integration
complete
Same disciplined, deliberate and methodical process as in
the Golden West integration
Convert
payroll and
benefits
systems
Rebranding
begins
Integration
team
formed
Detailed
planning
Complete
brokerage,
insurance
and mutual
fund
conversions
1Q08
Complete Eastern
deposit conversions
2Q08
Finish rebranding
Integration complete
Legal
closing
Page 24—5046, Retail Brokerage; Defining the End Game
Merger project office
Wachovia Corporation
K. Thompson – Chairman and CEO Capital Management Group
Merger Steering Committee Strategy/Authority
Focus: Strategy & Oversight
D. Carroll, R. Bagby D. Ludeman, D Kelly
Merger Project Office Focus: Merger Coordination
Line of Business Focus: and Staff Support Function Enterprise Focus Area Planning & Staff Transition Transition Managers Transition Managers Managers – Full Time Implementation
Private Client
Group Operations Risk Marketing Tech/Ops Training
Independent Corp & Inv Brokerage Group Technology Finance Legal HR
Banking
Financial Services
Group Legal Communications Corp. Real Estate Risk
HR Compliance Audit Communications
Page 25—5046, Retail Brokerage; Defining the End Game
Wachovia Securities joint venture
Prudential options
Prudential to elect one of the following options:
Make an additional capital contribution
– Prudential can elect any level of ownership up to 38%
– Contribution amount would be based on “appraised value” of the acquired business
– Prudential would also contribute pro rata share of qualified one-time costs
Make no capital contribution and be diluted
– Requires valuation of both A.G. Edwards and existing joint venture. Prudential relative
ownership level determined based on “appraised value”
– Prudential would pay pro rata share of qualified one-time costs based on ownership level
Exercise its “Lookback” option
– Prudential can elect to not contribute and reserve the right to make a contribution and
“true-up” ownership or put its interest for two years
– Requires valuation of both A.G. Edwards and existing joint venture. Future contribution, if
exercised, based on current valuation levels
– Prudential would not receive any ‘carry’ during the Lookback period; share in earnings and
one-time costs during Lookback period based on diluted ownership level
Exercise Put Right
– Acceleration of ability to “put” its stake to Wachovia
– Put consideration to be determined based on appraised value of the joint venture excluding
the value of the A.G. Edwards business
Page 26—5046, Retail Brokerage; Defining the End Game
IRR detail
IRR to Wachovia
($ in millions) 4Q07 2007 2008 2009 2010 2011 2012 IRR
Aggregate Offer Value ($6,943) Excess Capital* 1,852
After-Tax Cash One-Times (40) (450) (251 )
Expense synergies net of funding and other costs (44) 22 94 60 64 100
Incremental JV Cash Income** 119 478 499 549 605 668
Terminal Value of 2012 Income (13x) 12,628
Incremental Cash Flow($5,091) 36 49 343 609 669 13,397 24%
*AGE’s excess capital net of estimated exit costs purchase accounting adjustments available to partially fund cash portion of transaction.
**Assumes 2007 First Call Consensus estimate grown at consensus growth rate net of capital expenditures with assets grown at 7.5% and charge attributed for reducing AGE’s capital at the forward curve of fed funds as of May 30,2007. See financial assumptions in main body of presentation.
Page 27—5046, Retail Brokerage; Defining the End Game
Cautionary statement
This presentation contains certain forward-looking statements with respect to each of Wachovia and A.G. Edwards and the combined
company following the proposed merger between Wachovia and A.G. Edwards (the “Merger”), as well as the goals, plans, objectives,
intentions, expectations, financial condition, results of operations, future performance and business of Wachovia, including, without
limitation, (i) statements relating to the benefits of the Merger, including future financial and operating results, cost savings, enhanced
revenues and the accretion/dilution to reported earnings that may be realized from the Merger, (ii) statements relating to the benefits of the
merger between Wachovia and Golden West completed on October 1, 2006 (the “Golden West Merger”), including future financial and
operating results, cost savings, enhanced revenues and the accretion to reported earnings that may be realized from the Golden West
Merger, (iii) statements regarding certain of Wachovia’s and/or A.G. Edwards’ goals and expectations with respect to earnings, earnings
per share, revenue, expenses and the growth rate in such items, as well as other measures of economic performance, including statements
relating to estimates of Wachovia’s credit quality trends, and (iv) statements preceded by, followed by or that include the words “may”,
“could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan”, “projects”, “outlook” or similar expressions. These
statements are based upon the current beliefs and expectations of Wachovia’s management and are subject to significant risks and
uncertainties. Actual results may differ from those set forth in the forward-looking statements. These forward-looking statements involve
certain risks and uncertainties that are subject to change based on various factors (many of which are beyond Wachovia’s control).
The following factors, among others, could cause Wachovia’s financial performance to differ materially from that expressed in such forwardlooking
statements: (1) the risk that the businesses of Wachovia and A.G. Edwards in connection with the Merger or the businesses of
Wachovia and Golden West in connection with the Golden West Merger will not be integrated successfully or such integration may be more
difficult, time-consuming or costly than expected; (2) the risk that expected revenue synergies and cost savings from the Merger or the
Golden West Merger may not be fully realized or realized within the expected time frame; (3) the risk that revenues following the Merger or
the Golden West Merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption following
the Merger or the Golden West Merger, including, without limitation, difficulties in maintaining relationships with employees, may be greater
than expected; (5) the inability to obtain governmental approvals of the Merger on the proposed terms and schedule; (6) the failure of A.G.
Edwards’ shareholders to approve the Merger; (7) the risk that the strength of the United States economy in general and the strength of the
local economies in which Wachovia and/or A.G. Edwards conducts operations may be different than expected resulting in, among other
things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on Wachovia’s loan portfolio and
allowance for loan losses; (8) the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of
the Board of Governors of the Federal Reserve System; (9) potential or actual litigation; (10) inflation, interest rate, market and monetary
fluctuations; and (11) adverse conditions in the stock market, the public debt market and other capital markets (including changes in
interest rate conditions) and the impact of such conditions on Wachovia’s and A.G. Edwards’ brokerage and capital markets activities.
Additional factors that could cause Wachovia’s and A.G. Edwards’ results to differ materially from those described in the forward-looking
statements can be found in Wachovia’s and A.G. Edwards’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning Wachovia or the proposed
Merger or other matters and attributable to Wachovia or A.G. Edwards or any person acting on their behalf are expressly qualified in their
entirety by the cautionary statements above. Wachovia and A.G. Edwards do not undertake any obligation to update any forward-looking
statement, whether written or oral, relating to the matters discussed in this filing.
Page 28—5046, Retail Brokerage; Defining the End Game
Additional information
The proposed Merger will be submitted to A.G. Edwards shareholders for their consideration. Wachovia will file a registration statement
with the SEC, which will include a proxy statement/prospectus regarding the proposed Merger. A.G. Edwards’ shareholders and other
investors are urged to read the registration statement and the proxy statement/prospectus when they become available, as well as any
other relevant documents concerning the proposed Merger filed with the SEC (and any amendments or supplements to those documents),
because they will contain important information. You will be able to obtain a free copy of the registration statement and the proxy
statement/prospectus, as well as other filings containing information about Wachovia and A.G. Edwards, at the SEC’s website
(http://www.sec.gov) and at the companies’ respective websites, www.wachovia.com and www.agedwards.com. Copies of the proxy
statement/prospectus and the SEC filings that will be incorporated by reference in the proxy statement/prospectus can also be obtained,
free of charge, by directing a request to Wachovia Corporation, Investor Relations, One Wachovia Center, 301 South College Street,
Charlotte, North Carolina 28288-0206, (704) 383-0798; or to A.G. Edwards, Inc., Investor Relations, One North Jefferson Avenue, St.
Louis, MO (314) 955-3000.
Wachovia and A.G. Edwards, and their respective directors and executive officers, may be deemed to be participants in the solicitation of
proxies from the shareholders of A.G. Edwards in connection with the proposed Merger. Information about the directors and executive
officers of Wachovia is set forth in the proxy statement for Wachovia’s 2007 annual meeting of shareholders, as filed with the SEC on a
Schedule 14A on March 9, 2007. Information about the directors and executive officers of A.G. Edwards is set forth in the proxy statement
for A.G. Edwards’ 2007 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on May 15, 2007. Additional information
regarding the interests of those participants and other persons who may be deemed participants in the merger may be obtained by reading
the proxy statement/prospectus regarding the proposed Merger when it becomes available. You may obtain free copies of these
documents as described in the preceding paragraph.
Page 29—5046, Retail Brokerage; Defining the End Game