On April 15, 2001 Wachovia Bank NA announced a pending $14 Billion merger-of-equals transaction with First Union Corporation. In May of the same year, SunTrust announced a competing stock-for-stock acquisition proposal and solicited Wachovia’s shareholders to vote against the First Union merger. This set the stage for a hostile takeover fight among two of the nations’ top ten banks. Dispute Summary As a testimony to the acrid nature of the corporate battle, First Union took out a full-page advertisement in newspapers across the Southeast.
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The ads urge Wachovia shareholders to vote for the Wachovia/First Union merger via proxy. Such extreme tactics from normally staunch and conservative financial institutions highlight the high stakes involved, not only for this proposed merger in particular, but for the entire U. S. banking sector in general. The battle for Wachovia spilled over into the law courts, with First Union filing suits again SunTrust over its hostile takeover bid. The Federal Reserve Board is being dragged into the midst of the duel.
Even Wall Street analysts are in on the action, issuing statements to the effect that one or other of the two warring factions has the greater chance of taking control of Wachovia. In the ensuing months Wachovia had to defend its position in several lawsuits related to the merger and the hostile proposal. These suits included, among others federal and state law actions, Wachovia’s defense against a suite brought by SunTrust alleging that the Wachovia directors breached their fiduciary duties by entering into the First Union merger agreement and related stock option agreements and seeking to consummate the First Union merger.
In its efforts to fend off the competing offer for Wachovia from SunTrust, First Union asked legislators to change state laws governing corporate takeovers and make it harder for Wachovia shareholders to call a meeting to consider SunTrust’s offer. Legislators gave indications early on that they might play ball with First Union’s offer to block SunTrust’s bid to amend Wachovia’s bylaws. Legislative leaders indicated almost uniformly that they favor First Union’s request. First Union’s attorneys made the argument that the NC law gave hostile bidders an unfair advantage.
In essence First Union was petitioning legislators to do two thing; first remove Wachovia’s bylaws as a vehicle to consider hostile offers and second, enact another change to give corporations more freedom to structure deals with allies to fend off a hostile takeover. On July 20, 2001 the North Carolina Business Court denied, “All injunctive relief sought by SunTrust” and agreed with Wachovia’s position that Wachovia’s board of directors had fully complied with its fiduciary duties. After a contentious proxy fight, Wachovia’s shareholders voted in favor of the First Union merger by a significant margin.
How effective was the resolution process? In the final analysis the combined bank immerged as the fourth largest financial service institution in the country. To underscore the success of the litigation process, the North Carolina courts give favor to the native institutions thereby giving credence to the sometimes-subjective nature of the litigation process. For example, North Carolina is the second-largest banking state in the country and any dispute that threatens the stability of this status will be thoroughly challenged by legislators.
This goes back to the class discussion question #3 of this week which asks “what do you think is right or wrong about the legal system. ” Litigants who have access to the right resources can win favor during the dispute resolution process. This type of setting gives way to the question of “is justice being served. ” Proponent may argue however, that the end most often justifies the means. Such as in the case outlined above. So far the merger of Wachovia and First Union appear to have been very successful for the most part (both banks are still in the late conversion process).
Does the successful end of this resolution justify the native banks’ ability to influence local legislators’ judgment, which is based solely on geographic relationship and state status? One can argue either way. I believe (in my layman’s term) that the law should help to preserve the rights of the individual and also that of business entities to use whatever legal means and resources necessary to secure favor during the dispute resolution process.