Filed by First Union Corporation
Pursuant to Rule 425 under the Securities
Act of 1933 and deemed filed pursuant to
Rule 14a-12 under the Securities Exchange
Act of 1934
Subject Company: Wachovia Corporation
Commission File No. 1-9021
Date: May 23, 2001
This filing contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements include,
but are not limited to, (i) statements about the benefits of the merger between
First Union Corporation and Wachovia Corporation, including future financial and
operating results, cost savings, enhanced revenues, and accretion to reported
earnings that may be realized from the merger; (ii) statements with respect to
First Union's and Wachovia's plans, objectives, expectations and intentions and
other statements that are not historical facts; and (iii) other statements
identified by words such as "believes", "expects", "anticipates", "estimates",
"intends", "plans", "targets", "projects" and similar expressions. These
statements are based upon the current beliefs and expectations of First Union's
and Wachovia's management and are subject to significant risks and
uncertainties. Actual results may differ from those set forth in the
forward-looking statements.
The following factors, among others, could cause actual results to
differ materially from the anticipated results or other expectations expressed
in the forward-looking statements: (1) the risk that the businesses of First
Union and Wachovia will not be integrated successfully or such integration may
be more difficult, time-consuming or costly than expected; (2) expected revenue
synergies and cost savings from the merger may not be fully realized or realized
within the expected time frame; (3) revenues following the merger may be lower
than expected; (4) deposit attrition, operating costs, customer loss and
business disruption following the merger, including, without limitation,
difficulties in maintaining relationships with employees, may be greater than
expected; (5) the ability to obtain governmental approvals of the merger on the
proposed terms and schedule; (6) the failure of First Union's and Wachovia's
stockholders to approve the merger; (7) competitive pressures among depository
and other financial institutions may increase significantly and have an effect
on pricing, spending, third-party relationships and revenues; (8) the strength
of the United States economy in general and the strength of the local economies
in which the combined company will conduct 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 the combined company's loan portfolio and allowance for loan
losses; (9) changes in the U.S. and foreign legal and regulatory framework; and
(10) 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 the combined company's capital markets and asset
management activities. Additional factors that could cause First Union's and
Wachovia's results to differ materially from those described in the
forward-looking statements can be found in First Union's and Wachovia's reports
(such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K) filed with the Securities and Exchange Commission and
available at the SEC's Internet site (http://www.sec.gov). All subsequent
written and oral forward-looking statements concerning the proposed transaction
or other matters attributable to First Union or Wachovia or any person acting on
their behalf are expressly qualified in their entirety by the cautionary
statements above. First Union and Wachovia do not undertake any obligation to
update any forward-looking statement to reflect circumstances or events that
occur after the date the forward-looking statements are made.
The proposed transaction will be submitted to First Union's and
Wachovia's stockholders for their consideration, and, on April 26, 2001, First
Union filed a registration statement on Form S-4 with the SEC containing a
preliminary joint proxy statement/prospectus of First Union and Wachovia and
other relevant documents concerning the proposed transaction. Stockholders are
urged to read the definitive joint proxy statement/prospectus when it becomes
available and any other relevant documents filed with the SEC, as well as 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 joint proxy statement/prospectus, as well as
other filings containing information about First Union and Wachovia, at the
SEC's Internet site (http://www.sec.gov). Copies of the joint proxy
statement/prospectus and the SEC filings that will be incorporated by reference
in the joint proxy statement/prospectus can also be obtained, without charge, by
directing a request to First Union, Investor Relations, One First Union Center,
Charlotte, North Carolina 28288-0206 (704-374-6782), or to Wachovia, Investor
Relations, 100 North Main Street, Winston-Salem, North Carolina 27150
(888-492-6397).
First Union and Wachovia, and their respective directors and executive
officers may be deemed to be participants in the solicitation of proxies from
the stockholders of First Union and Wachovia in connection with the merger.
Information about the directors and executive officers of First Union and their
ownership of First Union common stock is set forth in First Union's proxy
statement on Schedule 14A, as filed with the SEC on March 13, 2001. Information
about the directors and executive officers of Wachovia and their ownership of
Wachovia common stock is set forth in Wachovia's proxy statement on Schedule
14A, as filed with the SEC on March 19, 2001. Additional information regarding
the interests of those participants may be obtained by reading the definitive
joint proxy statement/prospectus regarding the proposed transaction when it
becomes available.
THE FOLLOWING NEWS RELEASE WAS ISSUED BY FIRST UNION CORPORATION ON MAY 22, 2001
[FIRST UNION LOGO]
Tuesday Media Contacts:
May 22, 2001 Ginny Mackin 704-383-3715
Mary Eshet 704-383-7777
Investor Contact:
Alice Lehman 704-374-4139
CEO THOMPSON SAYS FIRST UNION AND WACHOVIA ARE
THE "IDEAL STRATEGIC FIT"
Companies Will Continue Integration Process to Create New Wachovia
Charlotte, N.C. - First Union's chief executive officer, Ken Thompson, made the
following statement in response to the announcement that the Wachovia Corp.
[NYSE: WB] Board of Directors has reaffirmed their support for a merger of
equals with First Union and rejected the hostile acquisition proposal by
SunTrust Banks, Inc.:
"The board reviewed the numbers and clearly communicated with their vote that
our merger of equals is the better choice for Wachovia shareholders. We are
confident that shareholders will agree when they look at the facts. We believe
that the SunTrust proposal simply won't work, and we are glad that the board has
validated our view.
"Merging Wachovia and First Union will create a new Wachovia with a platform for
sustained growth and increasing shareholder value. As we work with our
counterparts at Wachovia during the integration process, we are more certain
than ever that this merger is the best course of action for both companies. It
is an unprecedented opportunity for both companies' shareholders, customers,
employees and communities.
"The new Wachovia will be a powerful force in banking, wealth and asset
management, and capital markets. We will have over 19 million customers and
diversified income from international, national and regional businesses. We look
forward to continuing our integration with our Wachovia colleagues - in an
atmosphere of mutual respect and cooperation - to harness the tremendous
potential of the new Wachovia."
First Union (NYSE:FTU), with $253 billion in assets and stockholders' equity of
$16 billion at March 31, 2001, is a leading provider of financial services to 15
million retail
Page 1 of 2
and corporate customers throughout the East Coast and the nation. The company
operates full-service banking offices in 11 East Coast states and Washington,
D.C., and full-service brokerage offices in 47 states and internationally.
Online banking products and services can be accessed through www.firstunion.com.
The information presented herein may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Factors
that could cause actual results to differ materially from those described in the
forward-looking statements can be found in First Union's and Wachovia's public
reports filed with the Securities and Exchange Commission. In addition, in
connection with the proposed transaction with Wachovia, on April 26, 2001, First
Union filed a registration statement on Form S-4 with the SEC containing a
preliminary joint proxy statement/prospectus of First Union and Wachovia.
Stockholders are urged to read the definitive joint proxy statement/prospectus
regarding the proposed transaction when it becomes available and any other
relevant documents filed with the SEC because they will contain important
information. You may obtain a free copy of the registration statement and the
joint proxy statement/prospectus, without charge, at the SEC's internet site
(http://www.sec.gov). Copies of these documents can also be obtained, without
charge, by directing a request to First Union Corporation, Investor Relations,
One First Union Center, 301 South College Street, Charlotte, NC 28288-0206,
704-374-6782, or to Wachovia Corporation, Investor Relations, 100 North Main
Street, Winston-Salem, NC 27150, 888-492-6397. Information regarding the
director and officer participants in the proxy solicitation and a description of
their direct and indirect interest, by security holdings or otherwise, is
contained in the proxy materials filed with the SEC by First Union on March 13,
2001 and by Wachovia on March 19, 2001.
Page 2 of 2
THE FOLLOWING MEMORANDUM WAS RELEASED TO FIRST UNION EMPLOYEES
Interoffice
Memorandum
[FIRST UNION LOGO]
Date: From:
May 22, 2001 Ken Thompson
Chairman and CEO
To: Re:
All Employees Wachovia Merger
I am very pleased with today's announcement that the Wachovia board of directors
has rejected the unsolicited, hostile bid from SunTrust and reaffirmed its
commitment to complete our historic merger of equals.
Ours is the right combination, and it clearly is in the best interest of all
stakeholders. I believe strongly in the potential of the new Wachovia. As you've
heard me say several times in the past month or so, the merger of equals between
First Union and Wachovia will create a truly new company -- one that combines
the best talent, the most competitive products and the highest levels of
customer service from two organizations already known for high standards of
excellence. My belief in the new Wachovia is further strengthened by the
chemistry between the First Union and Wachovia teams.
Since April 16, when First Union and Wachovia announced our intention to
combine, many people from both companies have come together in planning for our
future success. That good work will continue as planned. We intend to consummate
our merger in the third quarter and are moving ahead with that timeframe in
mind. As usual, we will keep you informed as we move forward with the
integration process.
We may continue to face potential distractions. SunTrust may keep attempting to
make its case through the media. We know the real facts about the potential of
our combination and the enduring value it will create for all stakeholders. And
as always, let's keep our top priorities in front of us -- that is, providing
our customers the very best service, running the day-to-day business with
expense control in mind, and doing a great job growing revenue.
Thank you for your hard work and dedication.
Note: The following notice is included to meet certain legal requirements:
In connection with the proposed transaction with Wachovia, on April 26, 2001,
First Union filed a registration statement on Form S-4 with the SEC containing a
preliminary joint proxy statement/prospectus of First Union and Wachovia.
Stockholders are urged to read the definitive joint proxy statement/prospectus
regarding the proposed transaction when it becomes available and any other
relevant documents filed with the SEC because they will contain important
information. You may obtain a free copy of these documents, without charge, at
the SEC's internet site (http://www.sec.gov). Copies of these documents can also
be obtained, without charge, by directing a request to First Union Corporation,
Investor Relations, One First Union Center, 301 South College Street, Charlotte,
NC 28288-0206, 704-374-6782, or to Wachovia Corporation, Investor Relations, 100
North Main Street, Winston-Salem, NC 27150, 888-492-6397. Information regarding
the director and officer participants in the proxy solicitation and a
description of their direct and indirect interest, by security holdings or
otherwise, is contained in the proxy materials filed with the SEC by First Union
on March 13, 2001 and by Wachovia on March 19, 2001.
THE FOLLOWING Q&A WAS POSTED ON FIRST UNION'S INTERNAL WEBSITE
1. What did the Wachovia board of directors decide at their May 22
meeting?
A: The Wachovia board voted to reject last week's unsolicited bid from
SunTrust and reaffirmed its commitment to completing the
merger-of-equals agreement with First Union as originally announced on
April 16.
2. What does the board's decision mean for First Union?
A: Planning for the First Union-Wachovia combination continues. We expect
to complete the merger in 3rd quarter 2001.
3. What are the next steps?
A: On the integration front, ongoing planning to shape the new Wachovia
will continue as scheduled. On the legal merger front, both Wachovia
and First Union shareholders will be asked to approve the combination
later this summer.
4. Why is a First Union/Wachovia combination better than a
SunTrust/Wachovia combination?
A: The combined First Union-Wachovia will have a completely developed
business platform with a strong traditional bank, full capital
management services, a strong capital markets presence and
well-developed channels for distribution of products and services. A
SunTrust-Wachovia combination would not have comparable scope. The new
Wachovia will have almost twice the balance sheet size of a potential
SunTrust/Wachovia combination, providing the scale necessary to compete
more effectively. Also, our merger is friendly; the SunTrust hostile
takeover attempt has tremendous integration risk. Hostile takeovers in
the banking industry have proven to be enormously disruptive to
customers, employees and shareholders.
5. Why is Wachovia a strong fit with First Union?
A: First Union is the best possible merger partner for Wachovia. Both
banks have robust retail, corporate and asset management businesses and
are service leaders. The new Wachovia will be a world-class financial
institution with a strong strategic focus that will drive growth. The
new company will be the #1 retail bank on the East Coast, #1 in small
business banking, a leading national brokerage and fund manager, an
investment bank focused on growth companies, and a well-positioned
corporate bank. The cultures are also similar. We have a shared focus
on increasing shareholder value, unparalleled customer service, and a
strong commitment to communities. In fact, after only 8
1
months of discussions, we negotiated merger terms, signed an agreement
and began the integration process; SunTrust has been trying to work
with Wachovia for 16 years and still hasn't made progress. The
productive First Union/Wachovia integration process also demonstrates
the mutual respect we have for each other.
6. What do customers stand to gain from a Wachovia/First Union merger?
A: Our 19 million combined customers will benefit from a broader array of
services - encompassing corporate and retail banking, asset and wealth
management, capital markets and brokerage in 11 fast-growing states and
Washington, D.C. The new Wachovia will be well-capitalized and
technologically sophisticated. Therefore, we will be able to invest in
our businesses and provide customers the best products and services.
7. What does it mean that a Wachovia/First Union merger would "produce a
higher growth business mix"?
A: In recent years, both First Union and Wachovia have focused on higher
growth businesses, including brokerage and wealth management, as well
as corporate and investment banking. Post-merger, we envision that the
net income derived from these businesses would increase as a percentage
of total revenue, with a smaller percentage coming from retail banking.
8. Why should Wachovia shareholders approve the First Union merger when
SunTrust has offered a higher premium?
A: We believe shareholders will make more money from our friendly merger
of equals with Wachovia. The two companies together will have higher
growth in revenues and profits than either company alone, and the
combined company would have higher revenue and profit growth than a
SunTrust-Wachovia combination. The SunTrust hostile takeover attempt
incorporates tremendous integration risk. The premium it offers, which
has fallen sharply from the date first announced by SunTrust, does not
come close to compensating Wachovia's shareholders for this risk.
9. What does the change in the dividend offer to Wachovia shareholders
mean?
A: The move is designed to make sure that the dividend Wachovia
shareholders receive from the new combined company is equal to what
they received before the merger. Because our combined
2
company would generate excess capital right away, we will have a much
better opportunity to increase the dividend than SunTrust's proposed
company, which would take ten years to begin generating excess capital.
10. What about integration?
A: The integration process has been highly constructive. We have been
working together for five weeks and have made significant progress. We
have a strong management team identified and will make additional
announcements as soon as we can.
Note: The following notice is included to meet certain legal requirements:
In connection with the proposed transaction with Wachovia, on April 26, 2001,
First Union filed a registration statement on Form S-4 with the SEC containing a
preliminary joint proxy statement/prospectus of First Union and Wachovia.
Stockholders are urged to read the definitive joint proxy statement/prospectus
regarding the proposed transaction when it becomes available and any other
relevant documents filed with the SEC because they will contain important
information. You may obtain a free copy of these documents, without charge, at
the SEC's internet site (http://www.sec.gov). Copies of these documents can also
be obtained, without charge, by directing a request to First Union Corporation,
Investor Relations, One First Union Center, 301 South College Street, Charlotte,
NC 28288-0206, 704-374-6782, or to Wachovia Corporation, Investor Relations, 100
North Main Street, Winston-Salem, NC 27150, 888-492-6397. Information regarding
the director and officer participants in the proxy solicitation and a
description of their direct and indirect interest, by security holdings or
otherwise, is contained in the proxy materials filed with the SEC by First Union
on March 13, 2001 and by Wachovia on March 19, 2001.
3
THE FOLLOWING NEWS RELEASE AND LETTER TO SHAREHOLDERS ISSUED BY WACHOVIA
CORPORATION WAS POSTED ON FIRST UNION'S INTERNAL WEBSITE
May 22, 2001
Wachovia Board Rejects SunTrust's Hostile Offer
-----------------------------------------------
SunTrust Proposal Considered Financially and Strategically Unattractive; Board
Reaffirms Commitment to Merger of Equals with First Union That Will Create the
"New Wachovia"; First Union Merger Agreement Amended to Provide Wachovia
Shareholders Choice on Dividend
WINSTON-SALEM, N.C.-- Wachovia Corporation (NYSE: WB) today announced that its
board of directors has voted to reject the hostile acquisition proposal from
SunTrust Banks Inc. (NYSE: STI) and has reaffirmed its commitment to the planned
merger of equals with First Union Corporation (NYSE: FTU).
Wachovia's board also voted today to amend the merger agreement with First Union
to provide Wachovia shareholders a new dividend choice. Once the Wachovia/First
Union merger is completed, all Wachovia shareholders will have the option to
choose either:
o An ongoing cash dividend payment equal to Wachovia's current $2.40 per
share annual rate until the new Wachovia's dividend payment meets or
exceeds that rate per existing Wachovia share, or
o A special cash payment of $0.48 per existing Wachovia share at closing,
plus the regular new Wachovia dividend to be set initially at an
anticipated annual rate of $1.92 per existing Wachovia share.
In a letter to shareholders, L.M. Baker Jr., Wachovia chairman and chief
executive officer, detailed four primary points regarding SunTrust's hostile
proposal:
A combined SunTrust/Wachovia will not provide adequate future earnings growth.
o SunTrust has produced lackluster growth over the past two years.
o During the first quarter, SunTrust's core earnings per share declined
relative to core EPS in both the 1st and 4th quarters of 2000.
o SunTrust's inability to grow in important business lines such as trust
and asset management, retail brokerage, and select capital markets
businesses raises concerns about its operating strategies and ability
to sustain core earnings growth.
o SunTrust's deteriorating Tier 1 capital ratio calls into question its
ability to continue to use aggressive share repurchases as a primary
driver of EPS growth.
o A combination with SunTrust could act as a drag on Wachovia's expected
future earnings growth.
There is serious implementation risk in the SunTrust proposal.
o SunTrust is very inexperienced in integration activities, having
completed only one transaction with a value greater than $100 million
in the past 10 years. The Wachovia transaction is three times larger
than any integration attempted to date and is twice as large as the
combined assets of all acquisitions completed in the last 10 years.
o The cost savings currently promised by SunTrust are significantly
greater than those we jointly estimated in December and, in SunTrust's
own view at that time, are unrealistically high.
o These cost savings could be achieved only through actions that would
slow the combined company's growth, hinder lines of business and lessen
service quality.
o SunTrust projects minimal accretion to earnings per share and, in our
view, long-term EPS dilution is more likely.
SunTrust's proposal does not compensate Wachovia shareholders for SunTrust's
inadequate future earnings growth and serious implementation risk.
o SunTrust's asserted 17% premium to the First Union merger agreement
fell to just 5% by the end of the trading day on which it was
announced. Clearly SunTrust's stock price cannot support an aggressive
hostile transaction.
There is no dividend advantage to SunTrust's hostile proposal.
o The original agreement provided a special dividend to Wachovia
shareholders equal to the expected present value difference between the
Wachovia and First Union dividends.
o Wachovia shareholders now can choose instead to continue to receive an
ongoing cash dividend payment equal to a minimum of Wachovia's current
$2.40 per share under the amended merger agreement with First Union.
"We looked long and hard, and on multiple occasions, at a combination with
SunTrust and concluded it would not work," Baker said. "These discussions
validated the belief that our companies have certain common values around
customers, employees and shareholders. However, each time the discussions broke
off due to the inability to translate those values into working business
strategies and operating models. Five months after our discussions broke down,
SunTrust is back with a less appealing, hostile proposal to take over Wachovia,
and our conclusion is the same: it will not work.
"In merging with First Union, Wachovia will create a premier, pace-setting
financial institution that is well positioned to meet the challenges and
opportunities of the future. In our merger of equals, Wachovia and First Union
each bring distinctive strengths that complement the other. First Union has
invested heavily in technology and has a wide breadth of products and services.
Wachovia has earned national acclaim for its high standard of customer service
and long-term relationships. By blending these strengths, the new Wachovia will
create the leading financial service company on the East Coast, with an
excellent platform for delivering superior long-term performance. Together, we
have the opportunity to achieve unusually attractive
growth in future years. For shareholders, the upside is substantial with
immediate earnings accretion and potential for price-earnings multiple
expansion. We are enthusiastic about the new Wachovia. We are off to an
excellent start.
"SunTrust has not invested heavily for the future. As compared with either
Wachovia or First Union, it does not have the management depth or operational
experience or the breadth of product and service offerings that are needed in
today's environment to compete on a larger scale. Nor do we believe that there
is the right strategic or operational fit between our two companies.
"We look forward to continuing to serve the best interests of Wachovia's
shareholders, customers, employees and communities as we proceed with the
creation of the new Wachovia. We remain confident in our vision and firmly
committed to its effective execution."
On April 16, 2001, Wachovia announced a merger of equals with First Union
Corporation.
The investor presentation will be available on www.wachovia.com. The text of
Baker's letter to shareholders follows:
May 22, 2001
Dear fellow Wachovia shareholder:
Last week, SunTrust Banks, Inc. made an unsolicited proposal to acquire
Wachovia Corporation. This afternoon, Wachovia's board of directors
voted to reject SunTrust's proposal and reaffirmed its commitment to
the planned merger of equals with First Union Corporation that was
proposed to shareholders last month.
The integration planning for the two companies is proceeding extremely
well, reinforcing our excitement over the strong prospects for this
combination. We see nothing in the SunTrust proposal to suggest that we
should reconsider the First Union merger, which we firmly believe to be
in the best interest of Wachovia, its shareholders, employees,
customers and the communities we serve. Specifically:
o We believe a combined SunTrust/Wachovia would grow more slowly
and be less profitable than a combined Wachovia/First Union
or, for that matter, Wachovia alone.
o We believe there are insurmountable strategic and operational
obstacles to combining SunTrust and Wachovia.
o We believe that even if Wachovia were seeking to sell itself,
which it is not, the potential returns to Wachovia
shareholders from a hostile acquisition by SunTrust are
unattractive.
There has been a great deal of speculation and inaccurate and
misleading information in the media recently about Wachovia, First
Union and SunTrust. Before going into detail on the SunTrust proposal,
please allow us to set the record straight.
Wachovia conducted an intensive review of its business strategy last
year. That review reaffirmed our belief that the greatest potential for
future growth and profitability lies in non-traditional banking
businesses (such as securities brokerage, capital markets, insurance
and wealth management) and in non-traditional approaches to traditional
businesses (such as our integrated approach to customer relationship
management). Over a two-day period in March, we described Wachovia's
business strategies to investors. Their response was favorable.
During our review, we considered whether merging with another financial
institution would help us achieve our goals. We knew that partnering
with the wrong financial institution would be detrimental to
shareholder value. By contrast, we determined that a partnership that
broadens our product lines and distribution and enhances market
leadership could be advantageous. For several years, we had
contemplated the possible advantages of a Wachovia/First Union merger
to achieve these objectives. And when Ken Thompson, First Union's new
chief executive officer, laid out his company's business strategies
last summer it was clear they were remarkably similar to our own.
At the time, First Union was emerging from a period of some
difficulties, mainly arising from two past acquisitions. It was clear
that we could not contemplate a merger until Ken Thompson and his new
management team had gotten the company clearly on track. When talks
with First Union began in earnest in April, an intensive examination of
its businesses showed the revitalization of the company and a genuine
turnaround. The performance of First Union's shares this year suggests
that investors agree with our conclusion.
The proposed merger of equals with First Union is compelling. It is
built on a genuine sharing of strengths and a cooperative determination
of business strategies and practices. For shareholders, the upside is
substantial earnings accretion from the outset and potential
price-earnings multiple expansion in the future. As our management
teams have met over this past month to develop business unit
strategies, it has been exciting to see the early results of their
collaboration. The potential for growth and high performance seems even
stronger.
We have not seen this unique potential in our discussions with
SunTrust. Managers from both of our companies have discussed partnering
several times over the past decade. These discussions showed that our
companies have certain common values around customers, employees and
shareholders. However, each time the discussions broke off due to the
inability to translate those values into working business strategies
and operating models. Time after time, our discussions with SunTrust
culminated in the conclusion that these companies could not be combined
in a way that realized either the core potential we see in our own
businesses or the enhanced potential we would seek for Wachovia
shareholders in a merger partner.
Our discussions in December of last year constituted an intense attempt
to find a way to combine our two institutions and again ended without a
completed transaction. One after another, Wachovia's senior managers
came back from discussions with their counterparts at SunTrust to
report that they did not believe the two operations could be combined
productively. We concluded that even with me serving as CEO of a
combined SunTrust/Wachovia for two years, maintaining the Wachovia name
and Wachovia directors filling half the board, the divergent strategies
for future growth could not be reconciled.
That was the point at which we ended discussions in December. The
structural issues around our asset management businesses referred to by
SunTrust were not, in fact, the only reason for breaking off
discussions; rather, they were symbolic of much broader issues.
Wachovia has spent five years developing a high-growth,
high-profitability model for our wealth and asset management business.
We were unable to understand SunTrust's insistence that we return to a
lower-performance model previously discarded by Wachovia. That kind of
refusal to explore alternatives was endemic to our discussions
regarding other primary business issues as well.
Now we want to discuss four key points about SunTrust's hostile
proposal.
A combined SunTrust/Wachovia will not provide adequate future earnings
growth. At a time when Wachovia and First Union are embracing a
non-traditional approach to banking, SunTrust remains a traditional
bank, and a combined SunTrust/Wachovia is merely a bigger traditional
bank. SunTrust has now produced lackluster growth over the past two
years. Our examination of SunTrust's businesses leads us to question
its ability to reverse this stagnation.
We are concerned about SunTrust's inability to grow important business
lines, such as trust and asset management, and ultimately to sustain
core earnings growth. The deterioration in SunTrust's core earnings in
the quarter ending March 31, while not a surprise to us, is
particularly disconcerting. In that report, SunTrust's profit margins
clearly came under pressure, fee income was stagnant, and earnings per
share growth was dependent on one-time securities transactions, cost
reductions and share repurchases. For all these reasons, we believe
that a combination with SunTrust would act as a drag on Wachovia's
expected future earnings growth.
There is serious implementation risk in the SunTrust proposal. SunTrust
is very inexperienced in integration activities, having completed only
one transaction with a value greater than $100 million in the past 10
years. The Wachovia transaction is three times larger than any
integration attempted to date by SunTrust and is twice as large as the
combined assets of all its acquisitions completed in the last 10 years.
The fundamental strategic differences already described are, we
believe, crippling to the success of any future combination. But even
if they could be overcome, the cost savings promised by SunTrust are
significantly greater than those we jointly estimated in our December
discussions. In our view (and in SunTrust's own view
last December), these new cost savings numbers are unrealistically
high. They could be achieved only through actions that would slow the
combined company's growth, hinder lines of business, and lessen service
quality. Even if the promised cost savings were achieved, SunTrust
projects minimal accretion to earnings per share. If our view of the
integration issues is correct, long-term earnings per share dilution
would be a more likely outcome. Even when using SunTrust's aggressive
assumptions, we expect the Wachovia/First Union merger to be
approximately twice as accretive as the SunTrust proposal.
SunTrust's proposal does not compensate Wachovia shareholders for
SunTrust's inadequate future earnings growth and serious implementation
risk. SunTrust is proposing a hostile transaction that is less
attractive in many ways than the combination we considered last
December.
By the end of the day it was announced, the asserted 17% premium to the
First Union merger agreement fell to just 5%. Clearly the SunTrust
stock price cannot support an aggressive hostile transaction.
There is no dividend advantage to SunTrust's hostile proposal. The
amended merger agreement with First Union provides Wachovia
shareholders the ability to continue to receive their existing annual
dividend payment of $2.40 per share. Once the Wachovia/First Union
merger is completed, all Wachovia shareholders will have the option to
choose either:
o An ongoing cash dividend payment equal to Wachovia's current
$2.40 per share annual rate until the new Wachovia's dividend
payment meets or exceeds that rate per existing Wachovia
share, or
o A special cash payment of $0.48 per existing Wachovia share at
closing, plus the regular new Wachovia dividend to be set
initially at an anticipated annual rate of $1.92 per existing
Wachovia share.
Future dividends are going to depend on the growth of the combined
company, and we are convinced that the new Wachovia can grow its
dividends more rapidly than SunTrust.
The bottom line is: our merger of equals with First Union is a
thoughtful, responsible strategic combination. It is off to an
excellent start. We have looked long and hard, and on multiple
occasions, at a merger with SunTrust, and concluded it just would not
work. Five months after our last discussions broke down, SunTrust is
back with a less appealing hostile proposal to take over Wachovia, and
our conclusion is the same: it will not work.
We reject SunTrust's hostile takeover bid and we remain fully committed
to our merger with First Union.
We firmly believe that when you consider our reasons, you will support
this decision. We will be sending you detailed information in the
coming weeks about the new Wachovia and asking for your support.
On Behalf of Your Board of Directors
Sincerely,
L.M. Baker, Jr.
Chairman and Chief Executive Officer
Wachovia Corporation, with dual headquarters in Atlanta and Winston-Salem, N.C.,
is a leading financial holding company serving regional, national and
international markets. As of March 31, 2001, Wachovia had assets of $75.6
billion. Member companies offer consumer and commercial banking, bank card,
asset and wealth management, capital markets and investment banking, community
development finance, brokerage and insurance services. Wachovia Bank, N.A., the
principal subsidiary, has nearly 650 offices and 1,350 ATMs primarily in
Florida, Georgia, North Carolina, South Carolina and Virginia.
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
(i) statements about the benefits of the merger between First Union Corporation
and Wachovia Corporation, including future financial and operating results, cost
savings, enhanced revenues, and accretion to reported earnings that may be
realized from the merger; (ii) statements with respect to First Union's and
Wachovia's plans, objectives, expectations and intentions and other statements
that are not historical facts; and (iii) other statements identified by words
such as "believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets" and similar expressions. These statements are based upon the current
beliefs and expectations of First Union's and Wachovia's management and are
subject to significant risks and uncertainties. Actual results may differ from
those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements: (1) the risk that the businesses of First Union and
Wachovia will not be integrated successfully or such integration may be more
difficult, time-consuming or costly than expected; (2) expected revenue
synergies and cost savings from the merger may not be fully realized or realized
within the expected time frame; (3) revenues following the merger may be lower
than expected; (4) deposit attrition, operating costs, customer loss and
business disruption following the merger, including, without limitation,
difficulties in maintaining relationships with employees, may be greater than
expected; (5) the ability to obtain governmental approvals of the merger on the
proposed terms and schedule; (6) the failure of First Union's and Wachovia's
stockholders to approve the merger; (7) competitive pressures among depository
and other financial institutions may increase significantly and have an effect
on pricing, spending, third-party relationships and revenues; (8) the strength
of the United States economy in general and the strength of the local economies
in which the combined company will conduct 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 the combined
company's loan portfolio and allowance for loan losses; (9) changes in the U.S.
and foreign legal and regulatory framework; and (10) 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 the
combined company's capital markets and asset management activities. Additional
factors that could cause First Union's and Wachovia's results to differ
materially from those described in the forward-looking statements can be found
in First Union's and Wachovia's Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K filed with the Securities and
Exchange Commission. All subsequent written and oral forward-looking statements
concerning the proposed transaction or other matters and attributable to First
Union or Wachovia or any person acting on their behalf are expressly qualified
in their entirety by the cautionary statements referenced above. First Union and
Wachovia do not undertake any obligation to update any forward-looking statement
to reflect circumstances or events that occur after the date the forward-looking
statements are made.
Additional Information:
You are urged to read the definitive joint proxy statement/prospectus regarding
the proposed merger between First Union and Wachovia when it becomes available,
because it will contain important information. You may obtain a free copy of the
preliminary joint proxy statement/prospectus filed as part of First Union's
registration statement on Form S-4, and other filings containing information
about First Union and Wachovia, including the
definitive joint proxy statement/prospectus when it becomes available, without
charge, at the SEC's internet site (http://www.sec.gov). Copies of the joint
proxy statement/prospectus and the SEC filings that will be incorporated by
reference in the joint proxy statement/prospectus also can be obtained, without
charge, by directing a request to First Union Corporation, Investor Relations,
One First Union Center, 301 South College Street, Charlotte, NC 28288-0206,
704-374-6782, or to Wachovia Corporation, Investor Relations, 100 North Main
Street, Winston-Salem, NC 27150, 888-492-6397. Information regarding the
participants in the proxy solicitation and a description of their direct and
indirect interest, by security holdings or otherwise, is contained in the
materials filed with the SEC by each of First Union and Wachovia on April 16,
2001.