Wachovia to buy A.G. Edwards

Wachovia Corp., the Philadelphia region's biggest bank, is buying stockbrokerage A.G. Edwards Inc. for $6.8 billion in a bid for a larger chunk of the trillions of dollars baby boomers are investing for retirement.

The combined firm, which will operate as Wachovia Securities, will be the nation's second-largest retail brokerage, with 14,784 financial advisers, according to Wachovia, which is based in Charlotte, N.C.

The deal announced yesterday will increase Wachovia's share of the brokerage business in the Philadelphia region from 13.7 percent to 18.1 percent, Wachovia said.

"The long-term-growth opportunities of the brokerage industry are extremely compelling to Wachovia, and we have long expressed our interest in growing this business, both organically and through acquisitions," said Ken Thompson, Wachovia's chairman and chief executive officer.

Thompson said that 57 percent of $20 trillion in investable U.S. assets was being handled by the brokerage industry, with a huge portion of that "money in motion" over the next decade as boomers inherit money from their parents and head into retirement themselves.

The merger is part of a broad effort by banks to boost their fee-based business and reduce their dependency on money-lending, which is subject to the volatility of interest rates.

Other drivers behind the deal are Wachovia's desire to strengthen its investment-banking business by having a wider distribution network for shares in initial public offerings, and A.G. Edwards' need to keep up with competitors by adding mortgages, auto loans, credit cards and checking accounts to its product offerings.

The investment-banking piece is important for Wachovia, said Mark Batty, a financial-services analyst at PNC Wealth Management, which manages $76 billion in assets. "It's going to help them win some deals down the road," he said.

Batty and other industry analysts generally had favorable views of the cash-and-stock deal, which would put Wachovia second behind Merrill Lynch & Co. Inc. in terms of brokers, and third behind Merrill and Smith Barney in terms of client assets.

The analysts said one of the keys to a successful merger would be the retention of brokers, who sometimes change firms after a merger and take their clients with them.

A broker in A.G. Edwards' Media office said he had received three calls from headhunters yesterday. To prevent defections, Wachovia said it would allocate $1.25 billion to six-year broker-retention packages.

Wachovia, whose Philadelphia brokerage operations have roots in Butcher & Singer, has 691 financial advisers in 30 offices in the Philadelphia region.

A.G. Edwards, founded in 1887 in St. Louis - where Wachovia Securities will relocate its headquarters from Richmond, Va. - has eight branches within 50 miles of Philadelphia. The company did not provide the number of brokers in those offices.

Wachovia said it planned to consolidate 200 to 250 overlapping branches as part of a plan to trim 10 percent - $395 million - from expenses by 2009. Pending approval by A.G. Edwards shareholders and regulators, the deal is expected to close this fall.

Wachovia had 223 branches in the Philadelphia region with $22.24 billion in deposits as of June 30, giving it the top market share, excluding several operations in Delaware that do not have traditional branches. The company was among the region's top three mortgage lenders in 2005, making 15,486 loans worth $1.8 billion, according to federal government data.

Shares of A.G. Edwards soared 14 percent yesterday, or $11.01, to close at $88.16. Wachovia's shares fell 36 cents, or less than 1 percent, to close at $54.19.