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As the value of its unsolicited bid for Wachovia Corp. dwindles, SunTrust Banks Inc.’s best hope for winning the bank may lie in its legal challenges to Wachovia’s friendly deal with First Union Corp. Atlanta-based SunTrust, represented by Skadden, Arps, Slate, Meagher & Flom and Ellis & Winters, has won a string of court victories in a North Carolina court set up specifically for business disputes. These small successes come as the market continues to equalize the value of SunTrust’s and First Union’s bids for Wachovia. Within the past week, Judge Ben Tennille has ordered Wachovia to turn over a 120,000-name list of its shareholders to SunTrust. On Monday, he denied a request by First Union and Wachovia to throw out a challenge to their merger pact, specifically, its $780 million break-up fee agreement. “We believe the merger agreement goes too far and is coercive of the stockholders,” said Richard Ellis, an attorney for SunTrust, “to make them vote for something they otherwise would not.” To bolster the SunTrust claim, Ellis said the court has granted SunTrust’s request to review Wachovia documents, including the minutes of boardroom discussions about its merger agreement with First Union, unveiled April 16. Ellis concedes that SunTrust must prove Wachovia intended to use the merger agreement to block other bidders. Ellis and SunTrust must work fast. On Tuesday, Tennille set a new hearing date for the SunTrust complaint of July 17 — less than three weeks before Wachovia shareholders are supposed to vote on the First Union merger. “The proper standard of review for the court is to more highly scrutinize what went on that might not be the case if you have situations that are not of that coercive nature,” Ellis said. Russell Robinson, an attorney for Winston-Salem, N.C.-based Wachovia and First Union, said Tennille’s ruling was merely procedural and that he expects the judge to rule for Wachovia when documents and depositions are presented in July. “I don’t see it as a setback at all,” he said. “In fact, we are encouraged in our belief that we will ultimately win.” The state court is also considering an allegation by Wachovia and Charlotte, N.C.-based First Union that SunTrust CEO L. Phillip Humann broke a confidentiality agreement made between the banks last fall by talking openly about those discussions when he launched SunTrust’s counterbid in May. Tennille has yet to focus on those allegations. But SunTrust’s court victories stand in contrast to setbacks on other major fronts for the bank. The latest came Tuesday when the U.S. Department of Justice declined to investigate the First Union-Wachovia merger on antitrust grounds. The clearance was officially given by the Federal Trade Commission. The Federal Reserve is still considering the proposal. SunTrust also was dealt a blow in the North Carolina legislature last week when lawmakers voted to revise the state’s corporate law and make it harder for a third party to call a special shareholder meeting. SunTrust has proposed that Wachovia call a special meeting to vote for an expanded board. More troubling for SunTrust is the diminishing value of its all-stock bid for Wachovia, which stood at $14.27 billion based on Tuesday’s closing price on the New York Stock Exchange. That’s only $239 million more than First Union’s $14.04 billion bid, compared with $2.1 billion more when it was first announced. “Though First Union’s track record in the merger game is spotty at best, it seems to have the inside track, at least as the offers now stand,” Kathy Shanley, an analyst with Gimme Credit in Chicago, said in a report issued Monday. Copyright (c)2001 TDD, LLC. All rights reserved.

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