In a merger that will create the #2 U.S. retail brokerage firm, Wachovia Corp. will acquire A.G. Edwards for $6.8 billion in cash and stock. Wachovia will offer A.G. Edwards shareholders 0.98 shares of Wachovia stock and $35.80 cash per share ($89.50 total), a 16% premium over A.G.'s Wednesday closing price of $77.15. If completed, the deal will double the size of Wachovia's brokerage unit; Wachovia expects it to affect earnings materially within the year, excluding acquisition costs of approximately $860 million. The combined brokerage will have $1.1 trillion in client assets and 15,000 financial advisers. In explaining Wachovia's strategy, CEO Kennedy Thompson believes "the long-term growth opportunities of the brokerage industry are extremely compelling." Prudential Financial, owner of 38% of Wachovia's brokerage arm, Wachovia Securities, supports the deal.
Sources: Press Release, Wall Street Journal, Bloomberg, MarketWatch, Reuters
Commentary: Wachovia's Earnings Jump 33% on Golden West Integration • Wachovia Acquires One of Europe's Largest Fixed-Income Credit Funds • AG Edwards Reports Strong Results - Should Investors Be Worried Going Forward?
Stocks/ETFs to watch: Wachovia Corp. (WB-OLD), A.G. Edwards (AGE). Competitors: Citigroup (C), Merrill Lynch (MER), Bank of American (BAC). ETFs: iShares Dow Jones US Broker-Dealer Index (IAI), streetTRACKS KBW Bank (KBE), Regional Bank HOLDRS (RKH)
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