NEW YORK — Wachovia Corp. (WB), the fourth-largest U.S. bank, Thursday said it will buy A.G. Edwards Inc. for $6.8 billion in cash and stock, creating the second-largest U.S. retail brokerage.
Charlotte, North Carolina-based Wachovia expects to fold A.G. Edwards into its Wachovia Securities brokerage, pushing deeper into metropolitan areas. The combined brokerage would have about 14,784 brokers, ranking behind Merrill Lynch & Co. ; and $1.15 trillion of client assets, ranking third behind Merrill and Citigroup Inc., Wachovia said. It would employ more than 31,000 people, and command a 14 percent market share.
"Long-term growth opportunities of the brokerage industry are extremely compelling to Wachovia," Wachovia Chief Executive Ken Thompson said in a statement. "This combination ... will further enhance our scale and relevance."
A.G. Edwards shareholders will receive 0.9844 of a Wachovia share and $35.80 in cash for each of their shares. The terms value A.G. Edwards at $89.50 per share, a 16 percent premium over their Wednesday closing price. A.G. Edwards shares had already risen 22 percent this year. The transaction comes nearly eight months after Wachovia completed the $24.2 billion purchase of U.S. savings and loan Golden West Financial Corp.
"(We) see significant cost savings as well as opportunities for Wachovia to overlay its broader product set," wrote Lehman Brothers Inc. analyst Jason Goldberg. "The purchase also reduces its mortgage contribution (to overall results)." Wachovia has 8,166 brokers and $773 billion of client assets. A.G. Edwards, founded in 1887, has 6,618 brokers and $374 billion of client assets. The combined brokerage would keep its name and be based in St. Louis, home of A.G. Edwards. Prudential Financial Inc. has a 38 percent stake in Wachovia Securities, and said it supports the merger.
Wachovia Securities Chief Executive Daniel Ludeman will retain his title, while A.G. Edwards Chairman and Chief Executive Robert Bagby will be chairman. Bagby, reached at his St. Louis office, said he could not comment. Wachovia expects $395 million of cost savings, or 10 percent of combined expenses, and to incur $860 million of merger charges over 18 months. It expects the transaction to boost earnings per share excluding items in the first year, and generate a 24 percent internal rate of return. The transaction is expected to close in the fourth quarter, pending shareholder and regulatory approvals. Credit Suisse, Wachovia Securities and the law firm Simpson Thacher & Bartlett LLP represented Wachovia on the transaction, while Goldman Sachs & Co. and the law firm Wachtell, Lipton, Rosen & Katz represented A.G. Edwards. Wachovia shares closed Wednesday at $54.55 on the New York Stock Exchange.