Wachovia-A.G. Edwards deal may inspire more mergers
By Christine Dugas, USA TODAY
Wachovia's (WB) bold move to acquire A.G. Edwards (AGE)- and create the second-biggest U.S. retail brokerage, by number of advisers - could spur further consolidation in the brokerage industry, analysts say.
The $6.8 billion cash-and-stock deal, announced Thursday, will form a powerhouse known as Wachovia Securities. It would have 3,350 brokerage locations across the USA, with more than $1.1 trillion in client assets and 15,000 financial advisers, second only to Merrill Lynch and just ahead of Citigroup's Smith Barney.
Several other financial firms have signaled that they, too, would be interested in acquiring a regional brokerage firm, says Richard Bove, an analyst and managing director of Punk Ziegel & Co. But there are only a few left, such as Raymond James and Piper Jaffray.
"In the next 12 to 18 months, virtually all of them should be gone," Bove says.
The transaction is expected to close in October, and the effects on consumers aren't yet clear. But some analysts say the combined firm's economies of scale could ultimately benefit retail customers.
"It has created a one-stop shop for financial services," says Jennifer Thompson, an analyst at Oppenheimer. "To the extent that they can offer better pricing, that is a good thing for consumers."
In a statement, Wachovia CEO Ken Thompson called the deal with A.G. Edwards, the nation's largest independent brokerage, a long-term growth opportunity. It will "further enhance our scale and relevance," he said.
Wachovia, the USA's fourth-largest bank, said its offer values A.G. Edwards at $89.50 a share - a 16% premium over the stock's closing price Wednesday.
"It's a unique deal because it's a combination of a top retail bank and a top brokerage firm," says Alois Pirker, an analyst at Aite Group.
But others questioned whether the acquisition is a wise one for Wachovia, which combined with Prudential Financial in 2003 and last year bought a major mortgage lender, Golden West Financial.
"It's entering into too many mergers, which may make sense from a business standpoint, but it makes no sense from a financial standpoint," Bove says.
It's also possible that many of A.G. Edwards' top-producing brokers will be lured away. Such mass departures typically occur after such mergers, notes Jaime Peters, an equity analyst at Morningstar.
Wachovia stock barely changed Thursday, while A.G. Edwards surged $11.01, more than 14%, to $88.16. Stocks of other regional brokerages jumped on speculation they, too, might be acquired.”