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 18, 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 IS A TRANSCRIPT OF A SPEECH BY KEN THOMPSON AT A PRUDENTIAL
SECURITIES-SPONSORED CONFERENCE HELD ON MAY 17, 2001
>>MIKE: NUMBER ONE, BEFORE FIRST UNION BEGINS, THIS IS THE PRUDENTIAL
FINANCIAL CONFERENCE IN WASHINGTON, D.C.
WE'RE ABOUT TO HEAR FROM THE FIRST UNION CEO.
BEFORE FIRST UNION BEGINS, LET ME REMIND YOU THAT ANY STATEMENTS MADE
DURING HIS PRESENTATION ARE SUBJECT TO RISKS AND UNCERTAINTIES AND FACTORS THAT
COULD CAUSE THEIR STATEMENTS TO DIFFER MATERIALLY FROM FORWARD-LOOKING
STATEMENTS ARE IN FIRST UNION'S REPORTS FILED WITH THE SEC, INCLUDING FIRST
UNION'S REGISTRATION STATEMENT ON FORM S-4 RELATED TO THE PROPOSED MERGER WITH
WACHOVIA.
PLEASE READ THAT DOCUMENT FILED WITH THE SEC WHICH CONTAINS INFORMATION
ABOUT CERTAIN PARTICIPANTS IN THE PROXY.
THESE CAN BE OBTAINED FOR FREE AT THE SEC'S WEBSITE OR FROM FIRST UNION
AND WACHOVIA AND I'M SURE, ELSEWHERE.
HAVING DONE THE DIRTY WORK, KEN THOMPSON, THANK YOU VERY MUCH FOR BEING
HERE TODAY.
KEN HAS BEEN WITH FIRST UNION FOR ABOUT A QUARTER OF A CENTURY, AND
HE'S SEEN A LOT.
HE'S WORKED HIS WAY UP THROUGH THE CAPITAL MARKET SIDE OF THE BUSINESS.
HE HAS BEEN A DRIVER IN WHAT IS CONSIDERED THE NEW ERA OF FIRST UNION.
BEING IN WASHINGTON, D.C., KEN, I GUESS I WILL BE A POLITICIAN HERE,
AND I WILL SAY I KNOW YOU'RE IN THE MIDDLE OF THE BATTLE. MAY THE BEST BANK WIN.
>>KEN: THANK YOU, MIKE.
I HOPE THE SAME THING.
I WANT TO THANK CHUCK AND MIKE FOR INVITING US HERE TODAY.
IT'S OUR PLEASURE TO BE HERE.
I'M JOINED BY BOB KELLY, CHIEF FINANCIAL OFFICER AT FIRST UNION.
AND I WANT TO ASK MIKE AND CHUCK'S FORGIVENESS BECAUSE I'M NOT GOING TO
TALK TODAY MUCH ABOUT EVOLUTION OF FINANCIAL SERVICES INDUSTRY.
YOU GOT AN EXPERT IN GENE LUDWIG WHO IS HERE, AND I COULDN'T ADD MUCH
TO WHAT HE WOULD SAY ANYWAY.
BUT WHAT I WANT TO TALK ABOUT IS PROBABLY MAYBE WHAT'S MORE IMPORTANT,
AND THAT IS FIRST UNION'S PROPOSED MERGER WITH WACHOVIA, AND THE HOSTILE OFFER
THAT'S BEEN MADE BY SUNTRUST BANK.
ALONG THE WAY, WHAT I WOULD LIKE TO DO IS SET THE RECORD STRAIGHT IN
SOME STATEMENTS THAT HAVE BEEN MADE THAT WE BELIEVE ARE MISLEADING AND THAT HAVE
APPEARED IN ANALYSTS' REPORTS AND THE PRESS OVER THE LAST FEW DAYS.
WE BELIEVE OUR MERGER OF EQUALS WITH WACHOVIA IS TRULY A NEW-AGE
TRANSACTION, AS IT'S BEEN DESCRIBED BY ONE PARTICULAR ANALYST. WHEN WE ARE
COMBINED, FIRST UNION AND WACHOVIA, WHAT YOU WILL SEE IS A NEW COMPANY. ONE THAT
HAS COMBINED THE BEST TALENT, THE BEST PRODUCTS AND SERVICES, THE BEST PROCESSES
AND THE BEST TECHNOLOGY AND CREATED A PLATFORM THAT WILL RAPIDLY LEAD TO
ENHANCED REVENUE AND EARNINGS GROWTH.
WE DIDN'T INCLUDE REVENUE GROWTH IN OUR ASSUMPTIONS WHEN WE PRESENTED
IT APRIL 16th IN NEW YORK, BUT LET ME GIVE YOU TWO THOUGHTS OF WHAT WE EXPECT
THAT GROWTH TO COME FROM.
FIRST, WE ANTICIPATE THE ANNUAL REVENUE IMPACT OF LEVERAGING WACHOVIA'S
SERVICE MODEL WITH OUR SALES PRODUCTIVITY, AND WE THINK THAT WILL BE DRAMATIC.
FOR INSTANCE, THE REDUCTION OF JUST 1% OF CUSTOMER ATTRITION WILL ABSORB $100
MILLION OR MORE IN ANNUAL REVENUE GROWTH.
SECOND, WACHOVIA CURRENTLY HAS FEW LICENSED BRANCH EMPLOYEES IN THEIR
BRANCHES. THAT IS SERIES 6 AND SERIES 7 SELLING FINANCIAL PRODUCTS. WE
ANTICIPATE AFTER THE MERGER IS CONSUMMATED LICENSING APPROXIMATELY A THOUSAND
EMPLOYEES AND WHEN WE GET WACHOVIA PRODUCTION TO THE LEVEL OF FIRST UNION
BRANCHES, THAT'S ANOTHER $30 MILLION A YEAR IN ANNUAL REVENUE.
IN TOTAL, WE EXPECT BUT ARE NOT COUNTING IN OUR PROJECTIONS THOSE
REVENUE ENHANCEMENTS ONCE THESE BEST PHILOSOPHIES ARE IMPLEMENTED.
SUNTRUST HAS WRITTEN A LOT OF THINGS OVER THE PAST FEW DAYS, BUT THEY
HAVE NOT ADDRESSED WHAT WE STRONGLY BELIEVE IS THE MOST IMPORTANT FACTOR IN OUR
DEAL, AND THAT IS SHAREHOLDER EARNINGS ACCRETION.
USING THEIR NUMBERS, THE ACCRETION TO WACHOVIA SHAREHOLDERS TO THEIR
HOSTILE ATTEMPT IS LESS THE ACCRETION PROVIDED IN THE FIRST UNION-WACHOVIA
MERGER.
WE PROJECT CASH EARNINGS PER SHARE ACCRETION TO
THE WACHOVIA SHAREHOLDERS OF 15% IN 2002, 17% IN 2003, AND 20% IN 2004. THAT
COMPARES WITH CASH EARNINGS PER SHARE ACCRETION TO WACHOVIA SHAREHOLDERS IN THE
HOSTILE ATTEMPT OF 3% IN 2002, 5% IN 2003, AND 9% IN 2004. THAT DOESN'T LEAVE A
LOT OF ROOM FOR A MARGIN OF ERROR.
THE INTERNAL RATE OF RETURN ON THE FIRST UNION-WACHOVIA DEAL TO THE
WACHOVIA SHAREHOLDERS IS 21%. THAT IS 25% GREATER FOR WACHOVIA SHAREHOLDERS
COMPARED TO THE 15 TO 17% IRR IN THE SUNTRUST OFFER. A 25% DIFFERENCE IN RETURNS
TRANSLATES TO A MAJOR ADVANTAGE OF EARNINGS PER SHARE OVER THE LONG TERM.
WE ANTICIPATE AT FIRST UNION THAT IT WILL TAKE US 1.6 YEARS TO OFFSET
OUR MERGER EXPENSE THROUGH EXPENSE EFFICIENCIES THAT WE HAVE OUTLINED VERSUS 4.5
YEARS IN THE SUNTRUST WACHOVIA MERGER.
THERE IS ANOTHER KEY, COMPELLING REASON OUR DEAL IS SUPERIOR. WE'LL
BEGIN TO GENERATE EXCESS CAPITAL MUCH MORE QUICKLY. TO BE CONSERVATIVE, LET'S
SAY THAT WE TAKE THREE YEARS TO GENERATE CAPITAL FROM COST SAVINGS IN EXCESS OF
OUR MERGER EXPENSES.
THAT'S A FULL DECADE -- THAT'S RIGHT, A DECADE SOONER THAN SUNTRUST
WILL GENERATE INCREMENTAL CAPITAL AS A RESULT OF THEIR DEAL. SAID ANOTHER WAY,
THE ONE-TIME COSTS RELATED TO SUNTRUST'S PROPOSAL, AND I'M REFERRING TO THE
AFTER-TAX RESTRUCTURING CHARGES, THE OPTION PAYMENT AND THE DIVIDEND INCREASE,
WOULD WIPE AWAY ANY POTENTIAL NET CAPITAL CREATION THAT'S IN THE DEAL FOR 13
YEARS.
SPEAKING OF THE DIVIDEND INCREASE THAT SUNTRUST HAS PROPOSED, IT'S TIME
TO DO THE MATH ON THAT, AS WELL. AS NOTED IN OUR PRESS RELEASE, THE CUMULATIVE
DIVIDEND PAYMENTS TO WACHOVIA SHAREHOLDERS THROUGH 2004 IS IDENTICAL UNDER OUR
MERGER IN THE SUNTRUST OFFER, $6.82 ON A PRESENT-VALUE BASIS.
OUR MERGER AGREEMENT INCLUDES A ONE-TIME SPECIAL 48 CENTS PER SHARE TO
WACHOVIA SHAREHOLDERS IN ADVANCE. THIS PAYMENT MAKES OUR CUMULATIVE DIVIDEND
PAYMENTS TO WACHOVIA SHAREHOLDERS IDENTICAL TO SUNTRUST'S PROPOSAL. BUT SUNTRUST
DOES NOT MENTION THIS IN THEIR COMPARISONS OF OUR OFFER.
ADDITIONALLY, WE PROJECT A 34% DIVIDEND PAYOUT RATIO ON OUR CASH
EARNINGS VERSUS THE OVER 40% PAYOUT REQUIRED BY SUNTRUST TO MAKE WACHOVIA
SHAREHOLDERS
WHOLE. TO ACHIEVE THIS PAYOUT RATIO, SUNTRUST HAS PROPOSED A 39% INCREASE IN ITS
DIVIDEND.
LET ME PUT THAT IN CONTEXT. SUNTRUST, WHICH IN THEIR PROPOSED DEAL WITH
WACHOVIA, WOULD BE STARTING FROM A WEAKER TIER ONE CAPITAL BASE THAN OURS, HAS
PROPOSED A HOSTILE, RISKY ACQUISITION REQUIRING ALMOST $2 BILLION IN ONE-TIME
CHARGES, WHICH GENERATES NO INCREMENTAL EXCESS CAPITAL FOR OVER 10 YEARS.
WHERE'S THE VALUE FOR THE SUNTRUST SHAREHOLDERS IN THAT DEAL?
FINALLY, LET'S DISCUSS CREDIT QUALITY. SUNTRUST SAYS THAT THEIR
PROPOSAL CREATES A COMPANY THAT IS BETTER POSITIONED FROM A CREDIT PERSPECTIVE.
HERE ARE THE FACTS. OUR PORTFOLIO WILL BE MUCH MORE DIVERSIFIED BY
GEOGRAPHY, BY PRODUCT AND BY INDUSTRY CONCENTRATION. WE WILL HAVE A SMALLER
CONCENTRATION, MUCH SMALLER CONCENTRATION OF REAL ESTATE LOANS IN THE FIRST
UNION-WACHOVIA MARRIAGE THAN IN THE PROPOSAL FROM SUNTRUST. AND OPERATIONAL RISK
IN THE SUNTRUST MERGER WILL BE EXTREMELY HIGH. A HOSTILE TAKEOVER OF A COMPANY
THREE-QUARTERS THEIR SIZE, OPERATIONAL RISKS ABOUND FROM THAT INTEGRATION.
FOURTH, LET ME SPEND A MOMENT NOW ON THE TREMENDOUS STRATEGIC FIT
BETWEEN FIRST UNION AND WACHOVIA.
THIS COMBINATION CREATES A DISTRIBUTION POWERHOUSE AT BOTH THE REGIONAL
AND NATIONAL LEVELS. THE NEW WACHOVIA WILL BE THE LEADING EAST COAST
DISTRIBUTION FRANCHISE SPANNING HIGH DENSITY, HIGH WEALTH MARKETS IN THE
MID-ATLANTIC AND THE HIGH GROWTH AREAS OF THE SOUTHEAST.
THE NEW WACHOVIA WILL BE A LEADER IN EACH OF ITS MARKETS. WE WILL HAVE
THE NUMBER ONE DOMESTIC DEPOSIT SHARE ON THE EAST COAST. WE'LL BE A LEADING
PLAYER IN 7 OF THE TOP 10 METROPOLITAN MARKETS IN THAT GEOGRAPHY. WE WILL HAVE
$115 BILLION IN DEPOSITS IN MSAs, AND WE WILL RANK EITHER NUMBER ONE OR TWO IN
DEPOSIT SHARE, ALMOST TWICE THE $63 BILLION PROJECTED BY THE HOSTILE SUITOR
HERE.
IN FACT, WE WILL HAVE NUMBER ONE, TWO OR THREE MARKET SHARE IN ALMOST
EVERY MSA IN THE SUBURBS IN NEW YORK CITY TO KEY WEST, FLORIDA.
OUR MULTIPLE DISTRIBUTION CHANNELS WILL HELP US CAPTURE AND SERVE A
BROADER CUSTOMER BASE WITH TAILORED DELIVERY TO ALMOST 20 MILLION CUSTOMERS IN
47 STATES.
COMPARE THAT TO THE HOSTILE PROPOSAL WHICH WOULD OFFER MONOLINE
DISTRIBUTION WITH LIMITED PRODUCT CROSS-SELL OPPORTUNITIES IN SEVEN STATES AND
WASHINGTON, D.C.
I SUGGEST TO YOU THAT THE SUNTRUST PROPOSAL IS ABOUT GETTING BIGGER NOT
BETTER.
NOW, CONCERNING INTEGRATION RISKS, I WOULD LIKE TO MAKE A FEW POINTS.
WE'RE TIRED OF READING THAT WE STUMBLED ON A SERIES OF MERGER
INTEGRATIONS. WE ACKNOWLEDGE THAT WE HAD PROBLEMS WITH THE CORESTATES
INTEGRATION, AND WE'VE LEARNED FROM THOSE MISTAKES. WE CORRECTED THOSE MISTAKES,
AND WE'RE MOVING FORWARD.
BUT WHAT HAS BEEN IGNORED IS THE TOTAL TRACK RECORD THAT FIRST UNION
HAS WHEN IT COMES TO ACQUISITIONS AND INTEGRATIONS.
THE TRUTH IS, OVER THE PAST 17 YEARS, WE CONVERTED MORE THAN 2,000
OPERATING SYSTEMS, 4,000 BRANCHES TO A COMMON PLATFORM WHILE AT THE SAME TIME
UPDATING EVERY MAJOR SYSTEM TO THE STATE-OF-THE-ART TECHNOLOGY.
DURING THE PAST 15 YEARS, SINCE INTERSTATE MERGERS WERE ALLOWED, WE'VE
ACQUIRED 81 BANKING INSTITUTIONS, AND 80 OF THOSE 81 INSTITUTIONS WERE CONVERTED
WITHOUT ANY MEANINGFUL CONVERSION PROBLEMS.
IN ADDITION, WE'VE ACQUIRED 10 BROKER DEALERS AND INVESTMENT ADVISERS
FLAWLESSLY.
SUNTRUST HAS NOT BEEN AN ACTIVE ACQUIRER DURING THE 17-YEAR PERIOD.
IN FACT, THEY HAVE COMPLETED ONLY TWO MERGERS DURING THAT PERIOD AT A
VALUE OF OVER $1 BILLION.
THAT DOES NOT PREPARE THEM TO CONVERT A BANK THREE-QUARTERS THEIR SIZE
IN A HOSTILE ENVIRONMENT.
NOW, LET'S DEAL WITH THE CONTENTION THAT OUR DEAL WOULD BE MORE
DISRUPTIVE TO CUSTOMERS.
LET ME ASSURE YOU THE HIGHEST PRIORITY GUIDING OUR JOINT MERGER
INTEGRATION PLANNING PROCESS IS RETAINING OUR CUSTOMERS. DURING EVERY
INTEGRATION MEETING FOR THE LAST MONTH WITH WACHOVIA, THE FIRST THING OUT OF
EVERYONE'S MOUTH IS, HOW WILL THIS AFFECT OUR CUSTOMERS? IN A WORD, I TELL YOU
THAT IT WILL BE POSITIVE.
OUR MERGER IS ABOUT OFFERING MORE CONVENIENCE TO OUR CUSTOMERS GOING
FORWARD. THE HOSTILE BIDDER WANTS YOU TO BELIEVE THAT OUR DEAL WOULD BE MORE
DISRUPTIVE TO CUSTOMERS THAN THEIR OWN UNSOLICITED OFFER.
BUT WE ANTICIPATE MINIMAL DIVESTITURES AND MORE THAN 65% OF THE
WACHOVIA AND FIRST UNION BRANCH CLOSURES ARE WITHIN ONE HALF MILE OF EACH OTHER,
AND THIS COMPARES TO LESS THAN 25% OF THE SUNTRUST BRANCHES.
THAT MEANS MORE CONVENIENCE AND MORE POINTS OF CONTACT FOR OUR CUSTOMER
BASE.
LET ME EMPHASIZE THAT WE'RE DETERMINED TO CONDUCT THIS TRANSITION IN
SUCH A WAY THAT PRODUCES THE LEAST POSSIBLE INCONVENIENCE TO OUR CUSTOMERS.
YOU ALSO MAY HAVE NOTICED THAT SUNTRUST HAS NOT DISCUSSED COMPARISONS
WITH FIRST UNION WHEN THESE COMPARISONS PUT THEM AT A DISADVANTAGE. THEY TOUT
THAT THEY HAVE AN EXCELLENT WEALTH MANAGEMENT FRANCHISE, BUT THEY DON'T MENTION
THAT IT PALES IN COMPARISON TO FIRST UNION'S.
THE FIRST UNION-WACHOVIA COMBINATION WILL BE ONE OF THE LARGEST
COMPETITORS IN BOTH ASSET AND WEALTH MANAGEMENT AND IN THE BROKERAGE BUSINESS.
WE'LL HAVE TWICE THE ASSETS UNDER MANAGEMENT, THREE TIMES THE MUTUAL
FUNDS AND OVER 10 TIMES THE NUMBER OF LICENSED BROKERS.
THEY WOULD LACK SUFFICIENT SCALE TO COMPETE EITHER REGIONALLY OR
NATIONALLY IN WEALTH MANAGEMENT OR BROKERAGE.
ANOTHER STRATEGIC ADVANTAGE TO OUR DEAL IS THAT IT PRODUCES A HIGHER
GROWTH BUSINESS MIX. A SIGNIFICANTLY HIGHER PERCENTAGE OF THE FIRST
UNION-WACHOVIA EARNINGS WILL BE GENERATED BY FASTER GROWTH AND LESS CAPITAL
INTENSIVE ASSET AND WEALTH MANAGEMENT, BROKERAGE AND CAPITAL MARKETS BUSINESSES
THAN IN THE OTHER OFFER.
WE BELIEVE THAT BASED ON BUSINESS MIX CONTRIBUTION, FIRST
UNION-WACHOVIA COULD BE EXPECTED TO GROW AT A 10 TO 12% PLUS RANGE OVER THE LONG
TERM VERSUS SUNTRUST'S OFFERED GROWTH RATE OF LESS THAN 9%.
NOW, A LOT HAS BEEN MADE ABOUT THE SUPPOSED CULTURAL DIFFERENCES
BETWEEN WACHOVIA AND FIRST UNION, AND HOW THE CULTURES BETWEEN WACHOVIA AND
SUNTRUST ARE MORE SIMILAR.
I'D LIKE TO MAKE THREE POINTS ABOUT THAT.
FIRST, PHIL HUMANN SAID IN HIS PRESENTATION TO ANALYSTS ON MONDAY THAT
SUNTRUST HAS BEEN TRYING TO DO THIS DEAL UNSUCCESSFULLY FOR HALF OF HIS CAREER.
THAT'S 16 YEARS. AND THAT SHOULD TELL YOU SOMETHING ABOUT THE CULTURAL FIT
BETWEEN WACHOVIA AND SUNTRUST.
SECOND, WE'VE ADMIRED OUR WACHOVIA COUNTERPARTS FOR YEARS AS TOUGH
COMPETITORS AND SINCE WE STARTED INTEGRATION PLANNING WITH THEM A MONTH AGO,
WE'VE GAINED EVEN MORE RESPECT FOR THEIR INTEGRITY AND VALUES, THEIR SKILLS AND
PROFESSIONALISM AND THEIR SIMILAR STRATEGIC PLAN TO OURS.
WE'VE SEEN EXCEPTIONAL COOPERATION OVER THAT ONE-MONTH PERIOD. WE'VE
BEEN ABLE TO ELIMINATE DUPLICATE PROJECTS AND ALIGN EXPENSE MANAGEMENT AND
PROCUREMENT PROGRAMS. WE'VE MADE EXCEPTIONAL PROGRESS AND INTEGRATION PLANNING
AS EVIDENCED BY THE ANNOUNCED EXECUTIVE MANAGEMENT TEAMS AND STATE AND REGIONAL
GEOGRAPHIC LEADERSHIP TEAMS.
THIRD, THROUGH OUR TOWN HALL MEETINGS AND OTHER EVENTS WITH EMPLOYEE
GROUPS FROM BOTH COMPANIES, WE'VE SEEN DEMONSTRABLE EMPLOYEE SUPPORT AND
ENDORSEMENT FOR THE FIRST UNION-WACHOVIA MERGER.
IN SHORT, WE BELIEVE OUR COMBINATION CREATES A COMPELLING BUSINESS
PHILOSOPHY AND CULTURE TOGETHER, AND CONTRAST THAT WITH THE HAVOC OF A HOSTILE
TAKEOVER.
SUNTRUST'S COMBINATION WOULD RESULT IN INADEQUATE SCALE IN A MAJORITY
OF NON-BANKING BUSINESSES CREATING THE NEED FOR AN ACQUISITION STRATEGY TO FILL
OUT THEIR PRODUCT MIX. THEIR HOSTILE OFFER FAILS TO MEANINGFULLY CREATE SCALE
AND PRODUCT STRENGTH IN BROKERAGE, MUTUAL FUNDS AND IN INSURANCE DISTRIBUTION.
ALL CRITICAL TO THE FUTURE OF FINANCIAL SERVICES. IT WOULD BE A
SUBSCALE CAPITAL MARKETS PLATFORM, WHICH WOULD REQUIRE MATERIAL FUTURE
INVESTMENT AND THEREFORE, INCREASED RISKS.
AND THE SIGNIFICANT INCREASE IN THE DIVIDEND AT ONE OF THE INDUSTRY'S
HIGHEST PAYOUT RATIOS CREATES A WEAKENED CAPITAL STRUCTURE THROUGH WHICH TO GROW
THROUGH ACQUISITION IN THE FUTURE.
I THINK THE IMPLICATIONS OF A HOSTILE CORPORATE TAKEOVER LIKE SUNTRUST
PROPOSES ARE WELL UNDERSTOOD IN OUR INDUSTRY. SO I WON'T GO INTO THAT FURTHER
HERE EXCEPT TO SAY THAT THE PREMIUM IN THEIR HOSTILE ATTEMPT, WHICH TODAY STANDS
AT ABOUT 5.5% WOULD NOT EVEN BEGIN TO COMPENSATE FOR THE TREMENDOUS INTEGRATION
RISKS SUCH A HOSTILE TRANSACTION WOULD CREATE.
OPPORTUNITIES LIKE THE FIRST UNION-WACHOVIA DEAL DON'T COME AROUND VERY
OFTEN. WE HAVE AN INCREDIBLE OPPORTUNITY TO CREATE A COMPANY THAT BRINGS THE
BEST TALENT, THE BEST PRODUCTS, THE BEST SERVICES, THE MOST CONVENIENCE INTO AN
OUTSTANDING VALUE PROPOSITION.
WE'RE GOING TO CREATE WITH WACHOVIA A BEST IN CLASS FINANCIAL SERVICES
INSTITUTION, THE MOST CONVENIENT, THE MOST RELIABLE, THE FRIENDLIEST, THE MOST
INTERESTED IN OUR CUSTOMERS, THE SAVVIEST.
I BELIEVE IT IS A NEW PARADIGM IN MERGERS.
IT'S IN-MARKET.
IT HAS MODEST, ACHIEVABLE COST SAVES OVER A THREE-YEAR TIME PERIOD.
IT IS SIGNIFICANTLY ACCRETIVE TO BOTH SETS OF SHAREHOLDERS BEGINNING
DAY ONE, AND IT IS FOCUSED FOREMOST ON CUSTOMER RETENTION.
I THANK YOU FOR YOUR TIME AND ATTENTION, AND AT THIS POINT, BOB KELLY
AND I WOULD BE HAPPY TO TAKE YOUR QUESTIONS.
>>MIKE: FOR THE FIRST UNION PEOPLE, IF YOU COULD, REPEAT ANY QUESTIONS
THAT ARE ASKED.
LET'S START WITH THE FIRST ONE.
ONE POINT THAT SUNTRUST MADE IN THEIR PRESENTATION THEY SAID, QUOTE,
THEIR HOUSE IS IN ORDER
MORE THAN YOURS.
HOW DO YOU RESPOND TO THAT COMMENT FROM SUNTRUST?
>>KEN: MIKE WAS ASKING WHY WE THINK OUR HOUSE WAS IN ORDER AND SUNTRUST
SAYS THEIRS IS MORE IN ORDER THAN OURS. THE WAY I WOULD ANSWER THAT, MIKE, IS WE
FEEL COMPLETELY CONFIDENT THAT OUR HOUSE IS IN ORDER. WE ANNOUNCED THE
RESTRUCTURING ON JUNE 22nd OF LAST YEAR. WE HAVE DONE EVERYTHING THAT WE SAID WE
WOULD DO IN THAT RESTRUCTURING. WE HAVE COMPLETED IT ON TIME, AHEAD OF SCHEDULE
AND OVER THE LAST THREE QUARTERS, WE HAVE MADE THE NUMBERS THAT WE SAID WE WOULD
MAKE.
WE'RE GROWING IN OUR GENERAL BANK. WE'VE GONE FROM THE CORESTATES
INTEGRATION ISSUES WHERE WE WERE LOSING DEPOSITS TO WHERE WE'RE GROWING
DEPOSITS.
WE'RE GROWING DEPOSITS AND INVESTMENT PRODUCTS AT THE SAME TIME, WHICH
SHOWS THAT WE ARE INCREASING SHARE OF WALLET WITH OUR CUSTOMERS.
OUR CAPITAL MANAGEMENT DIVISION HAS, WE THINK, OUTPERFORMED MANY IN
THAT BUSINESS, AND THE MARKET WAS SUFFERING EARLIER IN THE YEAR, AND WE THINK
THAT IT WILL CONTINUE TO GROW MORE THAN A 15% KIND OF GROWTH RATE THAT IT HAS
DONE OVER THE LAST FIVE YEARS; AND IN CAPITAL MARKETS, WE'VE DONE, I THINK, AN
EXCELLENT JOB OF RATIONALIZING THE EXPENSE BASE THERE AND AS THE MARKETS PICK
UP, WE THINK WE'RE GOING TO GET A SIGNIFICANT REVENUE LIFT OUT OF THAT LINE OF
BUSINESS.
SO IT'S BUSINESS AS USUAL AT FIRST UNION, AND THAT'S WHY WE THOUGHT WE
WERE READY TO TAKE ON THE INTEGRATION ISSUES RELATED TO THE WACHOVIA MERGER.
[ INAUDIBLE QUESTION ]
>>KEN: WE WILL.
THE QUESTION WAS, WE'VE HAD SUCCESS IN THE PAST IN GOING TO A
ONE-SYSTEM PLATFORM, AND WHAT WILL BE THE STRATEGY AS WE MERGE WITH WACHOVIA,
AND THE ANSWER IS, THEY'RE ON A ONE-SYSTEM PLATFORM.
WE'RE ON A ONE-SYSTEM PLATFORM. WE'RE ALREADY, IN OUR INTEGRATION
PLANNING, LOOKING AT THE VARIOUS SYSTEMS -- THEIR GENERAL LEDGER, OUR GENERAL
LEDGER, THEIR BROKERAGE SYSTEM, OUR BROKERAGE SYSTEM. WE WILL MAKE DECISIONS
LITERALLY ON WHICH IS THE BEST SYSTEM, AND WE WILL CONVERT, BUT WE'RE GOING TO
TAKE OUR TIME ON THESE CONVERSIONS.
WE'RE GOING TO PICK THE BEST SYSTEM, AND WE'RE CONVERTING OVER A 2 1/2,
3-YEAR TIME FRAME. WE'LL BE ABLE TO DO IT VERY METHODICALLY WITH A LOT OF CARE
AND WE'LL DO IT SO IT WILL NOT IMPACT CUSTOMERS. JEAN DAVIS FROM WACHOVIA WILL
BE HEAD OF TECHNOLOGY AND OPERATIONS AT THE NEW COMPANY.
SHE'S VERY IMPRESSIVE AND WORKING VERY CAREFULLY WITH THE PEOPLE AT
FIRST UNION ON THAT SIDE, AND WE'RE ALREADY GOING DOWN THE ROAD.
[ INAUDIBLE QUESTION ]
>>KEN: YES.
WE'RE LOOKING AT SYSTEMS AND TRYING TO DETERMINE, YOU KNOW, WHICH OF
THE VARIOUS SYSTEMS ARE THE RIGHT ONES, AND WE'VE GOT TIME.
>>MIKE: LET ME JUST ASK ANOTHER QUESTION.
THIS IS MIKE. HOW DOES THIS THING PLAY OUT? I MEAN, WHAT'S YOUR MOST
LIKELY SCENARIO? WE HAD THE WELLS SCENARIO A FEW YEARS AGO AND NOW WE HAVE THIS
ONE. IS THIS GOING TO TAKE 18 MONTHS? IS IT GOING TO TAKE A MONTH? WHAT'S YOUR
BEST GUESS?
>>KEN: MIKE, I DON'T WANT TO PREDICT WHAT HAPPENS HERE. WE'VE GOT A
VALID, BINDING AGREEMENT WITH WACHOVIA. WE THINK IT IS A GREAT DEAL, AS I'VE
JUST WALKED THROUGH, AND WE EXPECT TO END UP WITH THE MERGER OF EQUALS BETWEEN
WACHOVIA AND FIRST UNION.
>> WELL, THE SAME QUESTION I ASKED SUNTRUST THE OTHER DAY, HOW
COMMITTED ARE YOU TO THIS DEAL? I MEAN, IS THERE A BIDDING WAR HERE? BOTH SIDES'
BIDDING COULD BECOME THE WINNER'S CURSE.
>>KEN: WE'RE COMMITTED TO THE DEAL.
WE UNDERSTAND SHAREHOLDER VALUE, AND BEYOND THAT, I DON'T WANT TO TALK
ABOUT WHAT OUR STRATEGY WOULD BE.
[ INAUDIBLE QUESTION ]
>>KEN: THE QUESTION WAS, WHAT ARE THE THREE THINGS I WOULD SAY TO FIRST
UNION SHAREHOLDERS THAT MAKES THIS DEAL DIFFERENT THAN THE CORESTATES
EXPERIENCE, AND I WOULD SAY, NUMBER ONE, VERY REASONABLE ECONOMICS, WHICH ALLOW
US TO BE CONSERVATIVE IN COST
REDUCTIONS. IT ALLOWS US TO TAKE OUR TIME IN INTEGRATING THE TWO COMPANIES SO
THAT WE CAN DO IT SEAMLESSLY FOR CUSTOMERS, AND IT WILL ALLOW US TO GENERATE
SIGNIFICANT EXCESS CAPITAL GOING FORWARD WHICH WE CAN USE TO REINVEST IN OUR
BUSINESS, MAKE ACQUISITIONS IN THE ASSET MANAGEMENT, WEALTH MANAGEMENT AREA OR
BUY BACK STOCK, SO THAT WOULD BE, I BELIEVE, THE KEY THINGS THAT WOULD -- THAT I
WOULD SAY ARE DIFFERENT.
>>BOB: BOB KELLY HERE. I WOULD REMIND EVERYONE THAT THE CORESTATES DEAL
WAS A VERY SIGNIFICANT PREMIUM OVER MARKET, AND THAT FORCED ECONOMICS THAT
REQUIRED, IN THEORY, AT LEAST, GETTING OVER 40% OF THE COST IN THE FIRST YEAR.
WE'RE TALKING ABOUT LESS THAN THAT OVER THREE YEARS, AS WELL AS SIGNIFICANT
REVENUE ENHANCEMENTS, AND WE'VE BUILT NOTHING IN FOR THAT.
>>KEN: AND WE DID THAT HAVE BUILT INTO THE CORESTATES NUMBERS.
>> RIGHT. AND WE ARE CLEARLY LISTENING TO CUSTOMERS AND OUR PEOPLE IN
THE FIELD, AND WE DIDN'T HAVE THAT LUXURY BEFORE.
>>KEN: WE BELIEVE THAT THIS IS THE NEW PARADIGM THAT'S GOING TO BE
TAKING PLACE OVER THE YEARS AHEAD. DEALS WILL BE LOW PREMIUM, AND THEREFORE,
CREATING GREAT EPS ACCRETION IN THE SHORT-TERM.
>>BOB: FOR BOTH SIDES.
[ INAUDIBLE QUESTION ]
>>KEN: CAN WE PUT AN END TO SPECULATION ON THE CREDIT CARD DEAL, AND
THE ANSWER IS, NO, I CAN'T, AND WON'T COMMENT ON THAT.
[ INAUDIBLE QUESTION ]
>>KEN: WELL, IT'S PRETTY EARLY.
>>MIKE: THE QUESTION IS, WHAT IF THE STOCK DOESN'T GO UP TO RECOGNIZE
THE VALUE OF THIS DEAL, WHAT HAPPENS?
>>KEN: AGAIN, I'M NOT GOING TO SPECULATE ON WHAT OUR STRATEGY WILL BE
GOING FORWARD. I WOULD JUST SAY THAT SINCE THE SUNTRUST ANNOUNCEMENT, YOU KNOW,
IT'S GONE FROM 17% PREMIUM TO A 5% PREMIUM, AND WE LIKE WHAT'S HAPPENING WITH
THE STOCKS RIGHT NOW, AND WE WILL
ASSESS AS WE GO ALONG.
>>Mike: I THINK A NEW POINT YOU'RE BRINGING UP TODAY. YOU HAVE 17 YEARS
OF ACQUISITION EXPERIENCE AND THAT WOULD BE A POSITIVE.
YOU DON'T HAVE ALL THE SAME PARTS IN PLACE, THOUGH. SOME OF THE PEOPLE
HAVE LEFT OVER THIS PERIOD AND SOME ARE STILL THERE. CAN YOU ELABORATE ON THAT
POINT A LITTLE MORE?
>>KEN: I THINK WHAT I WOULD SAY IS IF YOU LOOK AT THE SENIOR MANAGEMENT
TEAM AT FIRST UNION, THE TOP 10 OR SO PEOPLE, ABOUT HALF OF THEM CAME FROM
OUTSIDE AND ABOUT HALF OF THEM HAVE GROWN UP WITH THE COMPANY. VERY FEW OF THEM
ARE IN THE SAME JOBS THAT THEY WERE IN FIVE YEARS AGO. IT IS A MANAGEMENT TEAM
THAT HAS BEEN IN PLACE SINCE EARLY OR LATE 1999, EARLY 2000. I THINK IF YOU LOOK
AT THE RESTRUCTURING THAT WE WENT THROUGH, IT'S A VERY GOOD INDICATION OF THE
KIND OF TALENT AND SKILL SET THAT THAT MANAGEMENT TEAM HAS, AND I THINK IF YOU
LOOK AT THE TERMS OF THE WACHOVIA TRANSACTION, IT'S A GOOD EXAMPLE OF THE KIND
OF FINANCIAL DISCIPLINE THAT THIS MANAGEMENT TEAM IS GOING TO HAVE GOING
FORWARD.
LAST THING I WOULD SAY, MIKE, IS WE ARE BEING AUGMENTED THROUGH A
MERGER OF EQUALS WITH AN EXTREMELY TALENTED MANAGEMENT TEAM FROM WACHOVIA, AND I
JUST CAN'T TELL YOU HOW EXCITED WE ARE ABOUT OUR NEW MANAGEMENT COMMITTEE, WHICH
INCLUDES PEOPLE LIKE STAN KELLY AND JEAN DAVIS AND DON TRUSLO AND PAUL GEORGE,
AND, OBVIOUSLY, BUD BAKER; AND AS GENE LUDWIG SAID EARLIER, THIS IS ABOUT
TALENT, AND WE THINK WE ARE PUTTING TOGETHER TWO GREAT MANAGEMENT TEAMS THAT ARE
GOING TO BE BETTER OFF BECAUSE OF THE COMBINATION OF THAT TALENT. .
[ INAUDIBLE QUESTION ]
>>KEN: NO, WE DON'T NEED THIS DEAL TO CREATE SHAREHOLDER VALUE.
WE ARE ON TRACK WITH THE PLAN WE PUT IN PLACE. I THINK FROM LATE
DECEMBER THROUGH THE DAY THAT WE ANNOUNCED THIS DEAL, WE HAD ONE OF THE
TOP-PERFORMING BANK STOCKS, AND I THINK THAT'S IN RECOGNITION OF THE TRACK
RECORD THAT WE'RE PUTTING IN PLACE, BUT I WILL SAY THIS. THIS DEAL IS INCREDIBLY
VALUE ENHANCING, AND SO WE WANT THIS DEAL VERY BADLY.
THIS DEAL WILL CREATE VALUE FOR OUR SHAREHOLDERS AND WACHOVIA
SHAREHOLDERS. IT'S NOT SOMETHING THAT WE HAVE TO HAVE. [ INAUDIBLE QUESTION ]
>>KEN: YOU KNOW, WE AND WACHOVIA, ARE PARTNERS BUT I DON'T THINK IT'S
FAIR FOR ME TO SPEAK ABOUT WACHOVIA'S RESPONSE AT THIS POINT BECAUSE WE'VE NOT
YET MERGED, AND THEY'VE GOT RESPONSIBILITIES THAT THEY NEED TO TAKE
RESPONSIBILITY FOR AND NOT HAVE ME SPEAK FOR THEM RIGHT NOW.
[ INAUDIBLE QUESTION ]
>>KEN: RIGHT.
QUESTION WAS, WHAT ARE WE DOING TO ENSURE THAT WE DON'T HAVE ISSUES
LIKE WE HAD AFTER THE CORESTATES CONVERSION? AND WHAT ARE WE GOING TO DO IN
PHILADELPHIA GOING FORWARD? NUMBER ONE, I WOULD SAY IN PHILADELPHIA GOING
FORWARD, WE WANT TO CONTINUE DOING WHAT WE'RE DOING RIGHT NOW, WHICH IS GROWING.
WE'RE VERY HAPPY WITH THAT MARKET. IT IS ONE OF THE MOST IMPORTANT MARKETS THAT
WE OPERATE IN, AND WE'VE GOT GREAT TRENDS GOING ON IN DEPOSIT GROWTH AND
EARNINGS GROWTH AND SALES MOMENTUM, AND WE'RE VERY HAPPY IN PHILADELPHIA.
WHAT WE ARE GOING TO DO TO MAKE SURE THAT WE DON'T HAVE INTEGRATION
PROBLEMS LIKE WE HAD THERE IS WE'RE GOING TO BE VERY METHODICAL AND VERY
DELIBERATE AS WE GO THROUGH THIS MERGER INTEGRATION AND THE ECONOMICS OF THE
DEAL ALLOW US TO DO IT VERY SLOWLY AND VERY METHODICALLY, AND WE'RE GOING TO BE
TESTING WITH CUSTOMERS CONSTANTLY AS WE MAKE EVERY MOVE TO MAKE SURE THAT WE'RE
DOING IT IN A WAY THAT WE'RE NOT GOING TO SUFFER A LOT OF CUSTOMER ATTRITION.
AGAIN, I GO BACK TO BOB KELLY'S ANSWER. BECAUSE OF THE COST SAVES THAT
ARE REQUIRED HERE VERSUS THAT DEAL, WE'RE GOING TO TAKE THREE YEARS TO MAKE THIS
WORK, AND THERE, WE HAD TO DO IT IN LESS THAN 12 MONTHS. THAT IS A COMPLETELY
DIFFERENT SCENARIO, AND ONE THAT WE ARE 100% CONFIDENT WILL WORK VERY WELL.
[ INAUDIBLE QUESTION ]
>>KEN: I'M GOING TO ASK BOB KELLY TO TALK ABOUT THAT.
>>BOB: SURE. THE QUESTION IS, IS THERE A
BREAK-UP FEE INVOLVED? YES, THERE IS. IT'S INCLUDED IN THE S-4 FILING IN
EXQUISITE DETAIL, AND I WON'T GO THROUGH THE MAJOR CALCULATIONS, BUT YOU SHOULD
THINK IN TERMS OF A FLOOR TO CEILING OF $440 MILLION AND $780 MILLION
RESPECTIVELY AND FLIP-IN AND FLIP-OVER PROVISIONS, TWO VERY DIFFERENT ASPECTS,
WHICH CREATES A HUGE ECONOMIC VALUE, AND WE FEEL VERY COMFORTABLE WITH THIS
INSTRUMENT, AND IT'S NOT MATERIALLY DIFFERENT FROM ANYTHING THAT'S BEEN USED IN
THE PAST.
[ INAUDIBLE QUESTION ]
>>KEN: I'M NOT SURE I UNDERSTAND YOUR QUESTION. YOU SAID -- I MENTIONED
THAT IT TOOK -- SUNTRUST HAS BEEN WORKING ON THIS DEAL FOR 16 YEARS, AND DID WE
TAKE ANY ACTION --
>>MIKE: I THINK THE QUESTION IS BASICALLY, DIDN'T YOU KIND OF
ANTICIPATE THIS COULD HAPPEN SINCE THEY WERE TRYING TO DO THIS DEAL FOR, I
GUESS, THE LAST 16 YEARS? HOW DID YOU HANDLE THAT POTENTIAL THREAT WHEN YOU
NEGOTIATED THE DEAL?
>>KEN: WE WERE NEGOTIATING WITH BUD BAKER AND WITH THE WACHOVIA
MANAGEMENT TEAM AND ULTIMATELY WITH THE WACHOVIA BOARD.
WE PUT A DEAL TOGETHER THAT IS COMPELLING FINANCIALLY AND COMPELLING
STRATEGICALLY.
WE CERTAINLY HOPED THERE WOULDN'T BE A HOSTILE ATTEMPT, BUT THERE IS, AND WE
SIMPLY ARE GOING TO STAND BY OUR DEAL AND SEE IT THROUGH TO CONSUMMATION.
IT'S THE BEST DEAL FOR THE WACHOVIA SHAREHOLDERS.
[ INAUDIBLE QUESTION ]
>>KEN: THE QUESTION WAS, IN THE SPIRIT OF THE CONFERENCE, ABOUT THE
EVOLVING FINANCIAL INDUSTRY, WHERE DO I SEE FIRST UNION IN FIVE YEARS, AND I
THINK WE'VE LAID OUT OUR STRATEGY, AND IT WILL BE TO BE A FINANCIAL SERVICES
SUPERMARKET UP AND DOWN THE EAST COAST WITH STRONG MARKET SHARE WHERE WE'RE
PROVIDING NOT JUST TRADITIONAL BANKING SERVICES FOR OUR RETAIL CUSTOMERS BUT
ALSO ALL THE WEALTH MANAGEMENT PRODUCT LINE THAT THEY COULD WANT.
WE SEE A STRONG EMPHASIS IN CAPITAL MANAGEMENT AND WEALTH MANAGEMENT.
WE SEE TREMENDOUS WEALTH PASSING FROM ONE GENERATION TO THE NEXT OVER THE NEXT
10 YEARS. WE THINK WE ARE SITTING IN THE PERFECT GEOGRAPHY TO
RECOGNIZE TREMENDOUS INCOME GROWTH THERE. WE ALMOST SEE OURSELVES LIKE THE TOLL
GATE THAT WARREN BUFFET TALKS ABOUT IN THAT REGARD. WE ARE MIDDLE MARKET
ORIENTED FROM A CORPORATE AND COMMERCIAL STANDPOINT, BUT, AGAIN, WE'VE GOT THE
CAPABILITY AND THE PLATFORM TO OFFER ANYTHING FROM CHECKING ACCOUNT TO M&A
ADVICE, TO EQUITY UNDERWRITING, TO INTEREST RATE PROTECTION.
WE'VE GOT A FULL-SERVICE MENU THAT CAN DO A WONDERFUL JOB FOR TARGETED
CLIENTS OF OURS AND WE SEE THAT AS A GROWTH PLATFORM. WE WILL AUGMENT IT WITH
THE TREMENDOUS CAPITAL THAT WE'LL BE ABLE TO GENERATE AFTER THIS MERGER. WE WILL
AUGMENT OUR MODEL BY MAKING SOME WEALTH MANAGEMENT ACQUISITIONS OVER TIME, I
WOULD THINK. THEY WOULD BE SMALL, BUT THEY WILL ADD TO OUR CAPABILITY, AND WE
WILL SIMPLY DO A BETTER AND BETTER JOB OF CROSS-SELLING TO OUR 19 MILLION
CUSTOMERS UP AND DOWN THE EAST COAST. THERE'S TREMENDOUS GROWTH OPPORTUNITY FOR
US WITHOUT GOING OUTSIDE OF THE CUSTOMER BASE.
>>MIKE: THAT'S ALL THE TIME WE HAVE FOR FIRST UNION.
THANK YOU FOR COMING TO THE CONFERENCE.
>>KEN: THANK YOU, MIKE.
THE FOLLOWING IS A SUMMARY OF KEN THOMPSON'S SPEECH AT THE PRUDENTIAL
SECURITIES-SPONSORED CONFERENCE HELD ON MAY 17, 2001, WHICH WAS POSTED ON FIRST
UNION'S INTERNAL WEBSITE
First Union and Wachovia: A Powerful Combination
A New Age Deal: better for Customers, Better for Employees, Better for
Shareholders:
o In-market
o Modest, achievable cost saves over a 3-year time frame
o Significantly accretive to both sets of shareholders
o Focused foremost on customer retention
First Union/Wachovia: A Strategic Fit
o Distribution powerhouse at both the regional and national
levels.
o Leading east coast distribution franchise spanning high
density, high wealth markets in the Mid-Atlantic and the high
growth markets of the Southeast.
o Leader in each of its markets:
o No. 1 in domestic deposit share on the East Coast.
o A leading player in 7 of our top 10 metropolitan
markets.
o $115 billion deposits in MSAs where we will rank
either No. 1 or No. 2 in deposit market share, almost
twice the $63 billion total projected by the SunTrust
unsolicited offer;
o No. 1, 2 or 3 market share in almost every MSA from
the suburbs of New York City to Key West, Florida.
o Multiple distribution channels will help capture and serve a
broader customer base, with tailored delivery to almost 20
million customers in 47 states.
o Compare that to SunTrust's hostile proposal, which would offer
monoline distribution with limited product cross-sell
opportunities in only 7 states and D.C.
First Union/Wachovia: Better for Employees
o A lot has been made about the supposed "cultural" differences
between Wachovia and First Union, and how the cultures between
Wachovia and SunTrust are more similar.
o Phil Humann laments not being able to do this deal with
Wachovia in 16 years. That says something.
o We've admired our Wachovia counterparts for years as tough
competitors, and in meeting closely with them since our deal
announcement for the past month, we've gained even more
respect for their integrity and values, skills and
professionalism.
o We've seen exceptional cooperation on all sides.
o We've been able to eliminate duplicate projects and align
expense management and procurement programs.
o We've made exceptional progress in integration planning as
evidenced by the announced executive management teams and
state & regional General Banking teams.
o Through our town hall meetings and other events, we've seen
great employee support and endorsement of the First
Union/Wachovia merger.
o We believe our combination creates a compelling business
philosophy and culture.
First Union/Wachovia: Better for Customers
o Our deal will be less disruptive to customers.
o The highest priority guiding our joint merger integration
planning process is retaining our customers.
o We offer more convenience to our customers.
o SunTrust wants you to believe that our deal will be more
disruptive than their hostile offer.
o We anticipate minimal divestitures -- more than 65% of the
Wachovia and First Union branch divestitures are within a mile
of a First Union branch, meaning we will still have plenty of
branches conveniently located to serve customers.
o This compares to less than 25% of branch divestitures in the
SunTrust hostile offer, which means they'll have fewer
branches within a mile of each other and customers will have
to travel further to conduct their banking business.
o We offer more convenience and more points of contact for our
customer base.
o We are determined to conduct this transition in such a way
that produces the least possible inconvenience to our
customers.
Wealth Management Strengths:
o SunTrust touts an excellent wealth management franchise -- but
they don't mention that it pales in comparison to First
Union's.
o The new Wachovia will be one of the largest competitors in
both asset and wealth management and brokerage business, with
twice the assets under management, 3 times the mutual fund
assets and 10 times the number of licensed brokers of
SunTrust.
o They would lack sufficient scale to compete, either regionally
or nationally, in wealth management or brokerage.
Diversified Business Mix:
o Another strategic advantage to our deal is that it produces a
higher growth business mix.
o Well over 50% of the First Union/Wachovia earnings would be
generated by faster growth and less capital intensive asset
and wealth management, brokerage and capital markets
businesses.
o Based on business mix contribution, First Union/Wachovia could
be expected to grow at 10-12%+ over the long term --- versus
SunTrust's offered growth rate of less than 9%.
First Union/Wachovia: Better For Shareholders
Stronger Revenue Growth:
o Leveraging First Union's strong sales delivery model and
Wachovia's esteemed customer service model. We expect to
acquire new customers in virtually every market we're in based
on our superior brand, market share, and customer value
propositions, and one less competitor.
o The annual revenue impact of leveraging Wachovia's
service model alone will be approximately $100
million (this assumes a 1% decrease in the attrition
rate of our existing household base.)
o Wachovia currently does not have licensed branch employees
selling brokerage products and mutual funds. We anticipate
licensing about 950 employees and, when we get Wachovia
production to the level of current First Union employees
production, that would produce $30 million in annual revenue.
o We expect hundreds of millions of dollars of net
revenue enhancements once these "best of both"
philosophies are implemented.
Greater cash earnings per share:
o Accretion to Wachovia shareholders from SunTrust's hostile
takeover attempt is approximately half the accretion provided
in First Union offer.
o We project cash earnings per share accretion for Wachovia
shareholders of 15% in 2002, 17% in 2003 and 20% in 2004.
Compare that with the cash earnings per share accretion to
Wachovia shareholders suggested by SunTrust -- 3% in 2002, 5%
in 2003 and 9% in 2004.
Higher Internal Rate of Return:
o The internal rate of return in our deal is 21% -- 25% greater
value potential for Wachovia's shareholders as compared with
the 15% to 17% in the SunTrust offer. A 25% difference in
returns translates to a major advantage of earnings per share
over the long term.
o Only 1.6 years to offset our merger expense through the
expense efficiencies we have outlined -- versus 4.5 years in
the SunTrust offer.
Greater Capital Generation:
o Ability to generate some excess capital right away through
deploying capital in the corporate market more efficiently.
o Will take new Wachovia no more than 3 years to
generate capital from cost savings in excess of our
merger expenses, and that's a decade sooner than
SunTrust.
o Said another way, the one-time costs related to
SunTrust's proposal (based on the after-tax
restructuring charges, the option payment, and the
dividend increase) wipe away any potential for net
capital creation from cost savings for 13 years.
Better Dividend Payout:
o The cumulative dividend payments to Wachovia shareholders
through 2004 is identical under our merger and SunTrust's
hostile offer -- $6.82 on a present value basis.
o First Union merger agreement also includes a one-time special
dividend of 48 cents to Wachovia shareholders -- in advance.
This payment makes our cumulative dividend payments to
Wachovia shareholders identical to SunTrust's proposal.
o Project a 34% dividend payout ratio on our cash earnings,
versus the over 40% payout required by SunTrust to make
Wachovia shareholders whole.
o To achieve this payout ratio, SunTrust has proposed a 39%
increase in its dividend.
o SunTrust has proposed a hostile, risky acquisition, requiring
almost $2 billion in one-time charges, which generates no
incremental excess capital for over 10 years.
Less Credit Risk:
o SunTrust says that their proposal creates a company that is
better positioned from a credit perspective.
o Our portfolio will be much more diversified by geography,
product and concentration.
o We take a comprehensive approach to risk -- operational,
market and credit.
o And they would have a much higher concentration of commercial
real estate loans -- and as you know, there is increasing
concern in that area.
o A hostile takeover of a company three-quarters their size,
operational risks abound from that integration.
Smooth Integration:
o We acknowledge we had problems in the CoreStates integration
and we've learned from those mistakes.
o What has been ignored, however, is our longer-term track
record when it comes to acquisitions and integration.
o Over the past 17 years of our 43-year acquisition history, we
have converted more than 2,000 systems and 4,000 branches to
common systems, while at the same time updating every major
system to state-of-the art technology. We've retained the
acquired bank's systems when those systems were superior to
ours (international, for example, with CoreStates.)
o During the past 15 years, since interstate mergers were
allowed, we have acquired 81 banking institutions. Eighty of
those 81 institutions were converted without any meaningful
conversion problem. In addition we have acquired 10
broker/dealer & investment advisors flawlessly.
o SunTrust hasn't been an active acquirer during this period. In
fact, they have completed only two mergers during that period
at a value of about $1 billion.
o That does not prepare them to convert a bank three-quarters
their size in a hostile environment.
The SunTrust Hostile Offer: Final Points to Ponder
o Results in inadequate scale in a great majority of nonbanking
businesses, creating a need for an acquisition strategy to
fill out the product mix.
o Fails to meaningfully create scale and product strength in
brokerage, mutual funds, and insurance distribution -- all
critical to the future of financial services.
o Subscale capital markets platform, which would require
material future investment and therefore increased risk.
o And the significant increase in the dividend at one of the
industry's highest payout ratios creates a weakened capital
structure from which to grow through acquisition.
o Premium in their hostile takeover attempt would not even begin
to compensate Wachovia's shareholders for the tremendous
integration risk such a hostile transaction would create.
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 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. 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 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 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, and will also be contained in the
definitive joint proxy statement/prospectus.