Judge Says Shareholders Decide on First Union/Wachovia

July 20, 2001 (PLANSPONSOR.com) - a North Carolina Business Court judge has upheld First Union's merger agreement with Wachovia, but there was good news for rival suitor SunTrust as well.

The final result could impact both the direction and strategy of treasury management and retirement plan administration services for plan sponsor clients of the respective entities.

SunTrust had urged the court to block the merger and invalidate a break-up provision that would allow First Union to acquire a 19.9% stake in Wachovia valued at up to $780 million if the deal collapsed. SunTrust had characterized the controversial arrangement as a “sweetheart” deal.

Clear Choice

Judge Ben Tennille rejected SunTrust’s claims that provisions of Wachovia’s deal with First Union were designed to coerce shareholders into voting for the merger.

“The court is convinced that, after a vigorous proxy fight, the shareholders of Wachovia can make an uncoerced, fully informed decision about whether or not they wish to approve the merger with First Union,’ North Carolina Business Court Judge Ben Tennille wrote.

Second Chance?

However, not all went in First Union?s favor. The judge invalidated a non-termination provision of the deal, calling it “invalid and unenforceable” – clearing the way for SunTrust to press its hostile bid if Wachovia shareholders veto the First Union merger at a meeting on August 3.

In the wake of the court ruling, proxy advisor Institutional Shareholder Services was expected later in the day to release its recommendation on whether Wachovia shareholders should back the deal, according to the Associated Press.

At the time of its initial bid, SunTrust’s offer was 17% higher than First Union’s. However, SunTrust stock has since been hammered by concerns that it would engage in a bidding war, while Wachovia’s stock has been lifted by anticipation of the same event. Still, SunTrust’s offer still enjoys a slight monetary advantage, roughly $14.6 billion to $14.4 billion from First Union.