Wachovia Corp, the fourth-biggest US bank, agreed to buy Golden West Financial Corp for US$25 billion, accelerating its expansion in California's fast-growing market.
Golden West shareholders will receive 1.051 Wachovia shares and US$18.65 in cash, or US$81.07 a share, Charlotte, North Carolina-based Wachovia said in a statement yesterday. That's 15 percent more than Golden West's closing price last Friday.
The purchase is Wachovia's largest and the third by chief executive officer Kennedy Thompson in California in six months.
Wachovia gained a consumer-banking foothold in the state on March 1, when it added 19 branches by purchasing Irvine-based Westcorp for almost US$4 billion. California's economy is bigger than Canada's and its population is projected to grow 6.8 percent a year, exceeding the 4.8 percent US average.
"Wachovia has its eyes on competing with Bank of America and Citigroup, and there aren't many franchises available with the scale of Golden West," said Sunil Reddy, who holds Wachovia shares among the US$2 billion he helps oversee at Fifth Third Asset Management in Cincinnati. "They needed to expand in California."
Golden West, based in Oakland, California, has 285 branches with deposits of US$62 billion in 10 states. It also owns World Savings Bank, the nation's No. 2 savings and loan, and Atlas Funds, the manager of US$2 billion in mutual funds and annuities.
Golden West, founded in 1963 by Herbert and Marion Sandler, had almost US$125 billion of assets and 10,495 full-time employees at the end of last year. The Sandlers' stake is worth more than US$2.5 billion in a takeover.
Wachovia is buying Golden West "at a time when the housing market is slowing," said Richard Bove, an analyst at Punk Ziegel & Co in Pinellas Park, Florida, who expects Wachovia's stock to be "knocked substantially lower" by the agreement.
Golden West's "portfolio is made up almost entirely of mortgages," he said.
Shares of Wachovia rose US$1.01 to US$59.39 in New York Stock Exchange composite trading on Friday, closing below its all-time high of US$59.85. Golden West's stock climbed US$1.82 to US$70.51.
Wachovia is buying Golden West for 16.8 times what the company earned last year, compared with the 15.4 times that Capital One Financial Corp is paying for North Fork Bancorp.
US no 4
After the takeover, Wachovia will remain the No. 4 US bank, with assets of US$669 billion and customers in 21 US states and Washington, Wachovia said in yesterday's statement. It will have deposits of US$390 billion and loans of US$402 billion.
The deal, expected to close in the fourth quarter, will add to Wachovia's per-share earnings by the end of the second year after its completion, Wachovia said. The merger will generate after-tax cost savings of US$53 million over two years. Wachovia expects to record merger-related one-time costs of US$293 million.
Golden West ranks as California's sixth-biggest bank with more than US$27 billion of deposits in the state, according to research by Banc of America Securities. More than 120 of its 283 savings branches are in California. The rest are in Florida, Colorado, Texas, Arizona, New Jersey, Kansas, Illinois, Nevada and New York.
In addition to Wachovia's purchase of Westcorp, which gave it California's biggest provider of used-car loans, the bank in December purchased AmNet Mortgage Inc, a San Diego-based lender with a nationwide network of 7,000 mortgage brokers.