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In making a hostile bid Monday for Wachovia Corp., SunTrust Banks Inc. CEO L. Phillip Humann was motivated, in part, by a belief that he was misled. In December, SunTrust was in friendly negotiations to acquire Wachovia, Humann explained in a conference call Monday. Five months after those talks ended, Wachovia unveiled a $12.7 billion merger with First Union Corp. — even though it had told SunTrust it was not close to a First Union deal. That misinformation, coupled with a First Union offer that does not offer Wachovia shareholders a premium, helped cast Humann in the unlikely role of hostile bidder Monday. Atlanta-based SunTrust unveiled a $14.7 billion offer for Winston-Salem, N.C.-based Wachovia — a bid analysts are already predicting will win. “It’s a pretty sweet deal for shareholders,” said Jacqueline Reeves, an analyst with Putnam Lovell Securities in West Palm Beach, Fla. “[The SunTrust offer] would be the best price they could get.” Advised by William Weiant at Morgan Stanley and Bill Rubenstein at Skadden Arps Slate Meagher & Flom, Humann offered a 15.7 percent premium to Wachovia shareholders, who had driven down the bank’s stock 1.8 percent from the First Union deal’s announcement through Friday. He also offered an annual dividend of $2.22 compared to the $1.60 SunTrust is paying now and said he would cut 4,000 jobs to First Union’s 7,000. SunTrust also said it would provide cost savings of $500 million in three years. What’s more, in the past five years, SunTrust has performed better than Wachovia’s other suitor, Charlotte, N.C.-based First Union. Earnings at SunTrust have grown 11.5 percent during that span beating the industry’s 2.2 percent average. Meanwhile, First Union’s earnings have been flat. Wachovia’s board will consider the offer, the bank said Monday. Meanwhile, First Union stood by its current offer. “We’ve known for some time that SunTrust had an interest in Wachovia,” First Union CEO G. Kennedy Thompson said in a statement. “First Union and Wachovia determined that a strategic alignment between the two companies is in the best interest of all shareholders.” Humann has not only upped the ante for Wachovia, he’s shaken the confidence of the bank’s dealmakers who bet that SunTrust would not disturb the existing deal. Though their merger has a cross-share purchase agreement that allows First Union to buy up to 19.9 percent of Wachovia in the event of a breakup, dealmakers as late as Friday were counting on Humann to stay on the sidelines. To be sure, First Union-Wachovia dealmakers had history on their side, as SunTrust’s M&A history is light. The Atlanta-based bank has done only eight deals since 1994. Its only significant acquisition was an $8.4 billion deal for Crestar Financial Corp. in 1998. But history is out and Humann and SunTrust are in — a fact that comes as little surprise to Michael Bradley, a professor of investment banking and M&A at the Fuqua School of Business at Duke University in Durham, N.C. Bradley said the idea of southern banking “gentility” has been overplayed and, perhaps, overestimated by dealmakers. “It’s not been my experience,” Bradley said. “Every year we send our graduates to work in New York. The idea there’s not sophistication or among the people here just isn’t true. The hostility [of SunTrust] reflects that.” Bradley said in signing on with First Union, Wachovia was searching for a southern merger partner to fend off an advance from northeastern banks including FleetBoston Financial Corp. or HSBC Holdings PLC. “It was defensive move,” he said. “It was billed as a merger of equals which is code for the target’s management isn’t going to be unemployed.” If SunTrust’s offer fails, SunTrust will have put itself on the block and compete against a combined Wachovia-First Union, analysts said. “The rules are off,” said Richard X. Bove, an analyst with Raymond James in Clearwater, Fla. “They’ve made a good bid, but they’re in a battle with a company with more than double the assets and triple the cash. “And with the drop in their share price today, SunTrust just became very cheap.” SunTrust shares fell $4.81 or 7.4 percent to $60 on the New York Stock Exchange. First Union shares were up $0.56 or 1.87 percent to $30.58, while Wachovia’s share were up $3.85 or 6 percent to $64.75. Copyright (c)2001 TDD, LLC. All rights reserved.

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