Through TheFLY's Eyes: Wachovia Corporation
from Theflyonthewall.com


















Banking On The California Market

No one’s arguing that the Roaring 1990s “Merger Monday” phenomenon has returned, but the current bull market nevertheless registered another noteworthy deal Monday.

Wachovia Bank (WB) agreed to buy Golden West for Financial (GDW) for 1.051 shares of Wachovia stock priced at $62.42, plus $18.65 in cash for each share of Golden West, for a total deal cost of $26B.

The deal represents another data point underscoring the consolidation in the banking sector, which many analysts believe is moving toward a few national banks, supplement by small, niche/community-based banks at the local level.

Analysts said the deal may turn out to be one that benefits Wachovia shareholders more and than it would Golden West shareholders. Wachovia, seeking to keep pace with the Bank of America (BAC) and develop into a national bank, had eyed Golden West’s California presence, deposits, and mortgage industry position: the deal is viewed as generally positive for Wachovia. Analysts’ interpretation of the deal’s impact on Golden West’s shareholders is not as rosy, at least not initially: the deal is seen as short-circuiting Golden West’s unique business model.

Wall Street’s initial response Monday to the deal to was predictable. In early afternoon trading Monday, acquirer Wachovia dropped $3.45 to $55.93, and Golden West surged $5.17 to $75.68. Meanwhile, among the competitor banks, the Bank of America declined 38c to $50.09, Citigroup (C) decreased 12c to $50.25, and Sun Trust (STI) rose 32c to $77.61.

As is often the case regarding mergers and acquisitions, the final arbiter will be the market. If Golden West shareholders’ long-term rate of return inside Wachovia exceeds what they expected to earn in 3-5 years as a separate company, their decision to be bought by Wachovia will look not only prescient, but prudent as well.