The First Union Corp.-Wachovia Corp. merger won a major legal victory Friday, giving momentum to the campaign to create the nation's fourth-largest bank.
A North Carolina business court upheld the deal's $780-million breakup fee, which rival bidder SunTrust Banks Inc. wanted declared illegal. Judge Ben Tennille also found that, contrary to charges leveled by SunTrust, Wachovia's board knew what it was doing when it agreed to the hefty breakup provision.
The judge also refused to hold up the merger process and the Aug. 3 Wachovia shareholder vote on the deal.
"We're very pleased with the action," Wachovia chairman and chief executive L.M. "Bud" Baker said Friday. "We're very gratified the work of our board was recognized and upheld. We knew all along the Wachovia board acted in good faith."
The victory for the North Carolina banks against Atlanta-based SunTrust comes in the home stretch of a bitter fight. First Union and Wachovia announced their merger in April, and SunTrust launched a hostile bid for Wachovia a month later. Since then, the banks have waged a campaign of full-page newspaper ads, cross-country wooing of investors and high stakes for North Carolina. The state would keep the merged bank's headquarters if Charlotte's First Union wins Winston-Salem's Wachovia but would lose fewer bank branches if SunTrust prevails.
The ruling also will play a crucial role in the decision of an influential research group, which plans to recommend Monday how major shareholders should vote.
Maryland-based Institutional Shareholder Services said it will release its report Monday advising how institutional shareholders _ large pension and mutual funds _ should vote on the deal. ISS had considered issuing its report Friday, but decided to wait until Monday so it could further digest the ruling, said Ram Kumar, who is writing the report for ISS's more than 500 clients.
If the First Union merger gets ISS's nod, that, coupled with the court ruling would be a "big plus" for First Union, said Ron Mandle, analyst with Sanford C. Bernstein.
SunTrust spokesman Barry Koling said the bank had not made a decision on whether to appeal Tennille's ruling. "Our focus is on the (Aug. 3) shareholder vote," he said.
SunTrust captured one concession in the ruling. The judge threw out a provision that would have prevented Wachovia from talking to other suitors until mid-January, should its shareholders reject First Union. SunTrust attorney Richard Ellis said that win is "significant."