Pending completion of the deal late this year, the combination will give rise to the No. 2 retail brokerage in the U.S., with $1.1 trillion in client assets and a network of nearly 15,000 financial advisors serving clients nationwide.
The deal moves Wachovia up from the No. 3 spot and behind only Wall Street powerhouse Merrill Lynch & Co. Smith Barney had been the second largest retail brokerage.
The merger would also boost Wachovia's presence in three of the nation's largest states, according to analysts at Lehman Bros., with 25% of A.G. Edwards' assets located in California, Florida and Texas. It will almost double the number of retail offices Wachovia operates and give the bank the opportunity to sell its various banking products directly to A.G. Edwards' customers.
In his book One Up on Wall Street, Fidelity Fund manager Peter Lynch coined a term: "Deworsification." This occurs when a company buys another company that is in a completely different industry. This is the type of transaction to look for as a sign that M&A activity is getting overheated and is probably topping. However, this deal is not an example of this word.
This is a really good example of an intra-industry merger that makes tremendous sense. Wachovia has been using mergers to increase it's market presence in new areas, or to create synergies with existing areas. This is a good example of a company creating synergies. AG Edwards will combine with Wacovia's other assets to make a solid financial services firm. As the article explains:
The merger would also boost Wachovia's presence in three of the nation's largest states, according to analysts at Lehman Bros., with 25% of A.G. Edwards' assets located in California, Florida and Texas. It will almost double the number of retail offices Wachovia operates and give the bank the opportunity to sell its various banking products directly to A.G. Edwards' customers.
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"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 acquisition," said Ken Thompson, Wachovia's chairman and chief executive, in a statement.
Yesterday, I wrote a piece about when all of the M&A activity would end. One of the conditions of that analysis was deals that went badly. This one probably won't. In fact, it's a really good example of a good deal (in my opinion).
In other words, this is the type of M&A we should be encouraging.
