Filed by First Union Corporation
Pursuant to Rule 425 under the Securities
Act of 1933 and deemed filed pursuant to
Rule 14a-6(b) under the Securities Exchange
Act of 1934
Subject Company: Wachovia Corporation
Commission File No. 333-59616
Date: July 17, 2001
This filing contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements include,
but are not limited to, (i) statements about the benefits of the merger between
First Union Corporation and Wachovia Corporation, including future financial and
operating results, cost savings, enhanced revenues, and accretion to reported
earnings that may be realized from the merger; (ii) statements with respect to
First Union's and Wachovia's plans, objectives, expectations and intentions and
other statements that are not historical facts; and (iii) other statements
identified by words such as "believes", "expects", "anticipates", "estimates",
"intends", "plans", "targets", "projects" and similar expressions. These
statements are based upon the current beliefs and expectations of First Union's
and Wachovia's management and are subject to significant risks and
uncertainties. Actual results may differ from those set forth in the
forward-looking statements.
The following factors, among others, could cause actual results to
differ materially from the anticipated results or other expectations expressed
in the forward-looking statements: (1) the risk that the businesses of First
Union and Wachovia will not be integrated successfully or such integration may
be more difficult, time-consuming or costly than expected; (2) expected revenue
synergies and cost savings from the merger may not be fully realized or realized
within the expected time frame; (3) revenues following the merger may be lower
than expected; (4) deposit attrition, operating costs, customer loss and
business disruption following the merger, including, without limitation,
difficulties in maintaining relationships with employees, may be greater than
expected; (5) the ability to obtain governmental approvals of the merger on the
proposed terms and schedule; (6) the failure of First Union's and Wachovia's
stockholders to approve the merger; (7) competitive pressures among depository
and other financial institutions may increase significantly and have an effect
on pricing, spending, third-party relationships and revenues; (8) the strength
of the United States economy in general and the strength of the local economies
in which the combined company will conduct operations may be different than
expected resulting in, among other things, a
deterioration in credit quality or a reduced demand for credit, including the
resultant effect on the combined company's loan portfolio and allowance for loan
losses; (9) changes in the U.S. and foreign legal and regulatory framework; and
(10) adverse conditions in the stock market, the public debt market and other
capital markets (including changes in interest rate conditions) and the impact
of such conditions on the combined company's capital markets and asset
management activities. Additional factors that could cause First Union's and
Wachovia's results to differ materially from those described in the
forward-looking statements can be found in First Union's and Wachovia's reports
(such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K) filed with the Securities and Exchange Commission and
available at the SEC's Internet site (http://www.sec.gov). All subsequent
written and oral forward-looking statements concerning the proposed transaction
or other matters attributable to First Union or Wachovia or any person acting on
their behalf are expressly qualified in their entirety by the cautionary
statements above. First Union and Wachovia do not undertake any obligation to
update any forward-looking statement to reflect circumstances or events that
occur after the date the forward-looking statements are made.
The proposed transaction will be submitted to First Union's and Wachovia's
stockholders for their consideration. Stockholders are urged to read the
definitive joint proxy statement/prospectus regarding the proposed transaction
and any other relevant documents filed with the SEC, as well as any amendments
or supplements to those documents, because they contain (or will contain)
important information. You will be able to obtain a free copy of the joint proxy
statement/prospectus, as well as other filings containing information about
First Union and Wachovia, at the SEC's Internet site (http://www.sec.gov).
Copies of the joint proxy statement/prospectus and the SEC filings that have
been or will be incorporated by reference in the joint proxy
statement/prospectus can also be obtained, without charge, by directing a
request to First Union, Investor Relations, One First Union Center, Charlotte,
North Carolina 28288-0206 (704-374-6782), or to Wachovia, Investor Relations,
100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397).
THE FOLLOWING ADVERTISEMENT BY FIRST UNION RAN IN REGIONAL AND NATIONAL
PUBLICATIONS
[PHOTOGRAPH OF A LITTLE GIRL WITH A FLOWER APPEARS HERE]
When Wachovia and First Union merge,
something beautiful will grow.
Educational enrichment. Affordable housing. Small business growth.
When the people of our companies come together, the effect on people throughout
the Southeast will be profound.Together, we'll volunteer more than four hundred
thousand hours of our time to open young minds to the wonders of reading. Enable
more than twenty thousand hard-working families to cross the threshold of a new
home each year. Provide more than fifty five thousand small business loans to
help entrepreneurs realize the dream of their own business. And help breathe new
life into the neighborhoods we serve with six billion dollars in community
lending and investments over the next five years.
We are working so that, in a few short weeks, our strong legacies of community
volunteerism and investment can become one. We've announced a Community
Commitment program more than 35 billion dollars strong. And we believe the
result will be something remarkable. For us all.
[FIRST UNION LOGO APPEARS HERE]
First Union and Wachovia
The Right Combination
[WACHOVIA LOGO APPEARS HERE]
Stockholders are urged to read the definitive joint proxy statement/prospectus
regarding the proposed transaction and any other relevant documents filed with
the SEC because they contain important information.You may obtain a free copy of
the joint proxy statement/prospectus, as well as other filings containing
information about First Union and Wachovia, at the SEC's Internet site
(http://www.sec.gov). Copies of these documents can also be obtained, without
charge, by directing a request to First Union Corporation, Investor Relations,
One First Union Center, 301 South College Street, Charlotte, NC 28288-0206,
704-374-6782, or to Wachovia Corporation, Investor Relations, 100 North Main
Street,Winston-Salem, NC 27150,888-492-6397.Additional copies of the joint proxy
statement/prospectus may also be obtained by contacting First Union's proxy
solicitor, Morrow & Co., Inc., toll free at 1-877-366-1578, or Wachovia's proxy
solicitors, MacKenzie Partners, Inc., toll free at 1-800-322-2885, or Georgeson
Shareholder, toll free at 1-800-223-2064.The information presented above may
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Factors that could cause actual results to differ
materially from those described in the forward-looking statements can be found
in the joint proxy statement/prospectus and in First Union's and Wachovia's
public reports filed with the SEC.
THE FOLLOWING LETTER WAS SENT BY FIRST UNION TO INSTITUTIONAL SHAREHOLDER
SERVICES
July 17, 2001
Ram Kumar
Senior Analyst
Institutional Shareholder Services VIA FACSIMILE
-------------
301/545-4504
Re: First Union/Wachovia merger recommendation
Dear Mr. Kumar:
I would like to thank you and the other members of Institutional
Shareholder Services for taking the time to meet with Ken Thompson, David
Carroll, Mark Treanor, me and our Wachovia colleagues, Bud Baker and Bob McCoy,
on July 12, 2001. We are grateful for the chance to discuss our pending
merger-of-equals and its compelling merits for all Wachovia shareholders,
including your subscribers.
As we discussed in our meeting, there are compelling reasons for both
Wachovia and First Union shareholders to vote for the merger, including that the
merger is expected to:
o be immediately accretive to First Union's and Wachovia's shareholders;
o generate a 20+% internal rate of return;
o create a superior state-of-the art financial franchise blanketing the
east coast;
o create a platform for 11+% annual earnings growth; and
o build upon strong corporate governance standards.
Unfortunately, as part of the hostile bid process, there have been a
lot of charges and counter-charges that may have the effect of misdirecting some
members of the investing community away from the powerful logic underlying our
merger. We have been at times disappointed by what we believe is misinformation
by SunTrust and we would like to set the record straight about certain of their
recent communications to Wachovia shareholders.
I. Projected Dividend Growth
--------------------------
In a letter to Wachovia's shareholders dated July 5, 2001 (and in later
print advertisements), SunTrust has been using a chart that compares
hypothetical dividend growth following a SunTrust/Wachovia acquisition with that
following a Wachovia/First Union merger. This chart assumes 6% annual dividend
growth for both a combined SunTrust/Wachovia and for the new Wachovia. Because
SunTrust starts out with a higher dividend, its assumptions necessarily result
in a combined SunTrust/Wachovia producing a significant dividend advantage.
As we have discussed with you and filed publicly with the SEC, a
combined
Wachovia/First Union will not increase its dividend on a simple 6% annual growth
model. Instead, its dividend is projected to grow on the basis of a consistent
dividend payout ratio of approximately 33%. Accordingly, for example, if the new
Wachovia is able to grow earnings at 10%-12% as projected, the dividend would
grow by 10%-12%. Following this letter is a chart which we believe shows the
misleading effect of SunTrust's presentation. As you can see in the chart, we
believe Wachovia shareholders will earn more in cumulative dividends over the
next five years after the merger with First Union than they would if SunTrust
acquired Wachovia.
Moreover, we believe that there is a real question as to whether
SunTrust would ever be able to achieve its projected 6% annual dividend growth
given its heavy share repurchase program. Including recent authorizations,
SunTrust has repurchased over 15% of its outstanding shares since 1999, a
percentage 5 times the average for the 20 largest banks and almost twice the
next largest buy-back program. As a result, SunTrust's tier I capital ratio
would rank dead last among the top 50 banks if the Wachovia hostile takeover
were ever completed. SunTrust's own projections show only $300 million in annual
net excess capital being generated after a Wachovia acquisition, assuming the
proposed $2.22 per SunTrust share dividend. SunTrust's projected dividends and
share repurchases would represent 70% of its cash income after a hostile
Wachovia acquisition. We believe SunTrust would not be able to maintain such a
high payout ratio while at the same time reinvesting sufficient capital in its
core business to remain competitive and generate growth.
Unfortunately First Union can testify about the consequences of having
an excessive dividend and share repurchase/cash income ratio. Before our
difficult and painful decision to decrease our dividend in 2000, that ratio for
First Union was 69.6%. We are confident that First Union now has the right
growth model in place to deliver exceptional returns to shareholders. We believe
our second quarter results, which we shared with you on Thursday, and our 2001
stock price performance are proof our model is working.
SunTrust's own earnings projections assume less than a 9% earnings
growth rate and only 3% earnings accretion to Wachovia shareholders on a new
GAAP basis by 2004. We do not believe low capital ratios and a high dividend
payout ratio coupled with initial earnings dilution and high integration risk is
a good combination for Wachovia shareholders. As stated before, we believe First
Union's merger would provide Wachovia shareholders with 11+% earnings growth,
17% accretion on a new GAAP basis by 2004, low integration risk and dividend
payout and capital ratios comparable to peers.
II. Acquisition Experience
----------------------
In investor presentation materials also filed with the SEC on July 5,
SunTrust attempts to undermine confidence in First Union's projected earnings
growth from the Wachovia merger by attacking prior First Union acquisitions.
First, SunTrust's attack on First Union's record does highlight at
least one meaningful difference between First Union and SunTrust: First Union
has an acquisition record. SunTrust's experience may be summed up by Phil
Humann's own
2
words that SunTrust has been trying "for at least 16 years" to acquire Wachovia.
During this time, SunTrust completed only one significant bank acquisition, as
well as a securities firm acquisition that has been reported to have been a
failure. During those same 16 years, First Union completed 90+ acquisitions.
First Union has acknowledged that there have been some miscues in its
acquisition history and has made clear that its successes and its miscues have
been instrumental in the decision-making process today regarding the integration
of the new Wachovia. We believe that SunTrust has been less forthcoming about
its lack of acquisition and integration experience.
SunTrust has publicly stated that it believes it has gained the
experience it needs to integrate Wachovia through
o its Crestar acquisition, which is three years old, was negotiated
rather than hostile and required no divestitures or in-market
integration
o its internal Y2K project
o its closing of 40 branches in the ordinary course of business and
o its "one bank" internal reorganization, which is being undertaken later
than most banks and has yet to be completed.(1)
SunTrust relies on this limited experience to argue that it can
integrate a bank almost its equal in size, with 125-150 branch consolidations,
convert SunTrust's own computer systems in 1,100+ branches to Wachovia's
computer systems, and complete approximately $1.5 billion in regulatory
divestitures, all in a protracted, hostile takeover. We believe history and
logic demonstrates that SunTrust is wrong.
Second, we believe that SunTrust's attacks on our acquisition record
have been, in effect, misleading number games. As the second attached slide
attests, if one were to believe SunTrust's attacks on First Union's acquisition
track record, it would point to an earnings shortfall of $5.6 billion. For
example, SunTrust attributes to the Dominion transaction an earnings shortfall
four years later without any supporting evidence. It attributes earnings
shortfalls to other acquisitions where the entire income of the acquired company
was less than 10% of the size of the purported shortfall.
III. SunTrust Proposes Substantial Risk and Little Reward
----------------------------------------------------
On their conference call yesterday, SunTrust's management reconfirmed
in the strongest possible terms two points that are critical if shareholders
vote against the First Union merger:
o SunTrust will not increase its proposal above the current 1.081
exchange ratio.
--------
(1) Moreover, SunTrust has indicated that it would scrap its own reorganized
systems and use Wachovia's computer systems if its hostile takeover is
completed. In either case, all systems would be required to handle customer and
transaction volume in excess of 50% of the current capacity which, we have
learned through our extensive integration experience, adds an exponential degree
of difficulty to any integration.
3
SunTrust will not add cash. SunTrust will not add stock in The
Coca-Cola Company. In response to a question from an analyst, Phil
Humann quite definitively confirmed that even if First Union goes away,
Wachovia cannot negotiate a better deal from SunTrust.
o SunTrust's offer remains subject to due diligence (as well as numerous
other conditions, none of which has been satisfied). By contrast, First
Union completed its review and has no "due diligence out" in the
Wachovia/First Union merger agreement.
SunTrust chose not to comment upon the fact that over 50 members of congress
have written to the Federal Reserve Board questioning whether the Federal
Reserve should approve SunTrust's application.
First Union believes that hostile acquisitions do not work in the
banking industry because managements' fundamental ability to work together to
successfully complete the complex and critical integrations is impaired by the
hostile bid campaign. We believe the acrimony caused by SunTrust's hostile bid,
litigation, and ad campaign has permanently impaired the likelihood that
Wachovia's and SunTrust's managements would be able to ensure a successful
integration.
Accordingly, if the First Union/Wachovia merger is voted down on August
3, we believe that there is substantial likelihood that SunTrust's proposal will
never be consummated. We do not believe SunTrust's premium compensates for the
risk SunTrust is asking Wachovia's shareholders to take and the wait that will
in all cases be required for SunTrust to complete its hostile takeover.
Once again, First Union appreciates the opportunity to meet with you
and articulate our views why ISS should recommend to its subscribers that they
should vote for the First Union/Wachovia merger. For the reasons we set forth in
our meeting and as I have supplemented in this letter, First Union believes that
the merits of our merger are compelling. We respectfully ask for your
recommendation that First Union and Wachovia shareholders each vote in favor of
our merger. Thank you very much for your time and consideration.
Very truly yours,
Robert P. Kelly
cc: G. Kennedy Thompson
David Carroll
Mark Treanor, Esq.
[Note: the following legend is for legal purposes]
The proposed transaction will be submitted to First Union's and Wachovia's
stockholders for their consideration.
4
Stockholders are urged to read the definitive joint proxy statement/prospectus
regarding the proposed transaction and any other relevant documents filed with
the SEC, as well as any amendments or supplements to those documents, because
they contain (or will contain) important information. You will be able to obtain
a free copy of the joint proxy statement/prospectus, as well as other filings
containing information about First Union and Wachovia, at the SEC's Internet
site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and
the SEC filings that have been or will be incorporated by reference in the joint
proxy statement/prospectus can also be obtained, without charge, by directing a
request to First Union, Investor Relations, One First Union Center, Charlotte,
North Carolina 28288-0206 (704-374-6782), or to Wachovia, Investor Relations,
100 North Main Street, Winston-Salem, North Carolina 27150 (888-492-6397).
5
FIRST UNION PROPOSAL OFFERS WACHOVIA SHAREHOLDERS GREATER DIVIDENDS
WE'LL LET THE NUMBERS TELL THE STORY
--------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
First Union Proposal (w/DEP security)(1)
-----------------------------
Aggregate Dividends = $13.89
-----------------------------
$2.40 $2.42 $2.71 $3.01 $3.34
----------------------------------------
2002 2003 2004 2005 2006
-------------------------------------------------
Payout
Ratio 33% 33% 33% 33% 33%
-------------------------------------------------
[BAR CHART APPEARS HERE]
SunTrust Proposal(2)
-----------------------------
Aggregate Dividends = $13.53
-----------------------------
$2.40 $2.54 $2.70 $2.86 $3.03
----------------------------------------
2002 2003 2004 2005 2006
-------------------------------------------------
Payout
Ratio 42% 39% 37% 36% 35%
-------------------------------------------------
SunTrust has once again misled Wachovia shareholders concerning the
dividend potential of a First Union/Wachovia combination. As
highlighted above, we believe First Union's proposal offers Wachovia
shareholders both higher dividends over the next five years and greater
dividend growth potential over the long term all with a more
conservative dividend payout ratio.
[FIRST UNION LOGO APPEARS HERE] [WACHOVIA LOGO APPEARS HERE]
(1) Based on First Union/Wachovia projected dividend payout ratio of 33% of
cash earnings as stated in S-4 proxy with projected earnings growth of
11% as illustrated in First Union/Wachovia investor materials.
(2) SunTrust letter to shareholders dated July 5, 2001.
SunTrust...Misrepresentations of First Union's Record
--------------------------------------------------------------------------------
Misrepresenting First Union Acquisitions Track Record
($ in millions)
o SunTrust double, triple and even quadruple counts differences between
projected and reported earnings - misleading investors as to First
Union's track record
o SunTrust attributes the entire difference in First Union's projected
and reported earnings in 1999 and 2000 to, separately, the acquisition
of the Money Store, Signet, CoreStates and EVEREN
o As such, for example, SunTrust claims that the acquisition of EVEREN
resulted in an earnings shortfall of $1.5 billion, or 15x the projected
earnings contribution from the transaction
First Wheat Money
Dominion Fidelity First Store Signet CoreStates EVEREN
-------- -------- ----- ----- ------ ---------- ------
Announcement Date 09/21/92 06/19/95 08/20/97 03/04/98 07/21/97 11/18/97 04/26/99
Projected EPS $3.54 96 $3.62 97 $3.90 98 $4.38 99 $4.36 99 $4.46 99 $4.52 00
Reported EPS $3.16 96 $3.30 97 $3.21 98 $3.40 99 $3.40 99 $3.40 99 $2.97 00
------------------------------------------------------------------------------------------------------------------------------------
STI Claimed Shortfall (10.7)% (8.8)% (17.7)% (22.4)% (22.0)% (23.8)% (34.3)%
------------------------------------------------------------------------------------------------------------------------------------
STI Claimed Earnings Shortfall $219 $203 $676 $948 $928 $1,025 $1,510
From Acquisition
Est. Earnings Contribution $763 $50 $183 $350 $1,564 $100
From Acquisition
------------------------------------------------------------------------------------------------------------------------------------
Implied Shortfall/Earnings Contribution 27% 1,353% 518% 265% 66% 1,510%
------------------------------------------------------------------------------------------------------------------------------------
Implied Shortfall/
Earnings Contribution
-------------------------------------------------
EVEREN 1,510%
Wheat First 1,353%
Money Store 518%
Signet 265%
CoreStates 66%
First Fidelity 27%
-------------------------------------------------
--------------------------------------------------------------------------------
Cumulative Earnings Shortfall Implied by SunTrust = $5.6 Billion
--------------------------------------------------------------------------------
[FIRST UNION LOGO APPEARS HERE] [WACHOVIA LOGO APPEARS HERE]