Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Merger partners First Union Corp. and Wachovia Corp. were obliged Tuesday to amend key portions of their breakup fee arrangement in order to placate shareholders considering a rival hostile offer from SunTrust Banks Inc. The merger partners announced that if either bank opts out of the friendly $13.3 billion deal, the $780 million breakup fee would have to be paid in marketable assets. Attorneys for Atlanta-based SunTrust, which has made a $13.75 billion unsolicited bid for Wachovia, claimed that the original breakup fee agreement allowed any kind of asset, including troubled loans or investments, to be used to pay off the jilted suitor should SunTrust win control of Wachovia, based in Winston-Salem, N.C. First Union and Wachovia added that they are eliminating loopholes in their merger accord that SunTrust lawyers alleged would add as much as $1 billion in costs to any successful outside bidder. The new agreement calls for a “maximum profit” of $780 million for the bank exercising its breakup fee options. Under the terms of the First Union/Wachovia merger, First Union would be granted options to buy up to 19.9 percent of Wachovia at a set price should another bidder win control of the bank. First Union would then sell those shares to the winner, collecting the difference between the deal price and the option price. Now the two banks have capped the potential profit at $780 million and defined the assets in which it is payable. First Union, based in Charlotte, N.C., and Wachovia said in a statement that the changes were made “to eliminate any possible distraction of shareholders from the merits of the First Union-Wachovia merger.” But the announcement drew an immediate response from SunTrust CEO L. Phillip Humann, who spoke with analysts Wednesday on a conference call. Humann said the $780 million breakup fee remains excessive and SunTrust is pressing forward with its bid by filing a merger application with the U.S. Federal Reserve. “We are delighted but not surprised,” Humann said of the joint move by Wachovia and First Union. He added that SunTrust finds the friendly merger agreement “still has provisions that are outrageous.” SunTrust general counsel Ray Fortin, however, hinted that the changes may be enough for SunTrust to drop its case in Georgia state court. Last week, the bank alleged the breakup fee agreement was illegal and asked the court to throw it out. “They’ve dropped two of the unprecedented features,” said Fortin. “The cap is still very, very high but … we’re willing to deal with the option.” That may lead to SunTrust not moving forward with a long list of legal actions stemming from its challenge to the Wachovia-First Union agreement. A federal judge in Asheville, N.C., heard arguments Wednesday by SunTrust asking that he lift a lower state court restraining order blocking SunTrust’s suit in Georgia. Still, the concession by First Union and Wachovia comes as a blow to their respective attorneys for the merger agreement, H. Rodgin Cohen, chairman of Sullivan & Cromwell and Lee Meyerson at Simpson Thacher & Bartlett. A source familiar with the Wachovia-First Union legal effort said the changes in the breakup fee agreement were spurred by complaints from investors. In defending the agreement, the source said the $780 million cap had always been in place. Wednesday’s change was simply a clarification, the source said. Moreover, the ability to pay with any kind of asset was not intended as a deterrent to an outside bid. “This thing got blown out of proportion,” the source said. “We thought it would be much better to have property, to make the exercise easier. But basically this was becoming a sideshow.” Wachovia and First Union are represented in North Carolina by Russell M. Robinson of Robinson Bradshaw & Hinson. SunTrust is working with William Rubenstein of Skadden Arps Slate Meagher & Flom and the Atlanta-based firms King & Spalding and Hawking & Parnell. SunTrust is being advised by a team led by William Weiant at Morgan Stanley. Wachovia is being advised by Gregory J. Fleming at Merrill Lynch & Co. First Union is being advised by Michael Martin and Olivier Sarkozy at Credit Suisse First Boston. The lengthening list of dealmakers and legal help has not gone unnoticed. SunTrust’s Humann, when asked Wednesday if another bidder could emerge for Wachovia, said: “At this point in time I don’t think a fourth party could find enough investment bankers and lawyers to work for them.” Copyright (c)2001 TDD, LLC. All rights reserved.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.