Wachovia, the fourth-largest US bank today confirmed plans to acquire SouthTrust in a deal worth $14.3 billion (£7.8bn).
The terms of the all-share deal value SouthTrust at $41.83 per share, a 20 per cent premium over the issue’s closing price on Friday.
The move gives the acquisitive Wachovia more exposure to the fast-growing banking market of the southern states and Texas.
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“This transaction gives us clear leadership in a number of attractive, high-growth states, and extends our reach into new southeastern and southwestern states,” said Ken Thompson, Wachovia’s chief executive.
“It is also financially attractive for both sets of shareholders. It meets Wachovia’s investment return guidelines, while improving the long-term growth prospects for both companies,” he added.
Takeover rumours have surrounded SouthTrust, the 17th largest bank in the US, since early this year. The group’s stock has gained more than 10 per cent since April.
“We estimate that Wachovia would need to achieve 35 per cent cost saves in order to bid more than $40 per share and still make the deal neutral to earnings in year two,” analysts from Friedman Billings Ramsey said overnight, after word of a possible deal circulated, but before terms were announced.
Wachovia, with assets of $411 billion, is the fourth-largest bank in the United States, behind Citigroup, JP Morgan Chase & Co. and Bank of America.
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The deal marks another step in the quickening consolidation of the US banking sector. Last week, the Federal Reserve approved the $58 billion merger of JP Morgan Chase and Bank One, which the companies said would take effect next month.
The Fed vote is the last step in JP Morgan Chase’s buyout of the sixth-largest US bank, announced in January.
Antitrust regulators approved the plan in March and shareholders approved in May. The deal will create a bank with more than $1 trillion in assets, second only to Citigroup