Wachovia CEO Tells CNBC: Edwards Deal to Boost Client Access

Wachovia Chairman and Chief Executive Ken Thompson told CNBC the acquisition of A.G. Edwards, announced Thursday, would double Wachovia's size and give them further reach into affluent and retirement markets.

"This one [acquisition] really makes us an in-game player in brokerage,” Thompson said, on CNBC's "Squawk Box."

Wachovia agreed to buy A.G. Edwards for about $6.8 billion in cash and stock, creating the second-largest retail brokerage in the United States.

The deal calls for the exchange of 0.9844 shares of Wachovia common stock and $35.80 in cash for each A.G. Edwards share. The deal represents a 16% premium to A.G. Edwards' closing share price Wednesday.

Wachovia , the fourth-largest U.S. bank, will combine A.G. Edwards with its brokerage business, Wachovia Securities, pushing the company deeper into metropolitan areas.

The deal comes roughly seven months after Wachovia completed its $24.2 billion purchase of U.S. savings and loan company Golden West Financial Corp.

According Thompson, this latest transaction will also strength its investment-banking business and strengthen its underwriting efforts.

“If, in fact, we do see a waning of interest in the retail brokerage market, then this merger is going to be a great one for us because we’ll take out about $640 million of cost when we put two organizations together,” Thompson said.

Thompson expects there to be an internal rate of return on the deal of 24%.

"Our hurdle rate is 15% there, so it far exceeds that,” he said.

By combining with A.G. Edwards, it will have $1.1 trillion in client assets and nearly 15,000 financial advisors.

The company plans to operate the brokerage business as Wachovia Securities. Wachovia Securities President and Chief Executive Daniel Ludeman will keep that role in the combined brokerage firm.

A.G. Edwards Chairman and CEO Robert Bagby will be chairman.

Bagby, reached at his St. Louis office, told Reuters that he could not comment on the deal.

The combined organization should achieve expense efficiencies of $395 million after taxes by 2009, or 10% of its most recent fiscal year-end expense base, Wachovia said.

Wachovia expects to record merger-related and restructuring charges and exit cost purchase accounting adjustments of about $860 million after taxes in connection with the deal.

The Charlotte, North Carolina-based company said it expects the transaction to close in the fourth quarter of 2007, to add to earnings in the first full year following the closing and provide an internal rate of return of 24%.

Before deal was announced, A.G. Edwards shares were up 22% this year.

A.G. Edwards said in its latest proxy filing that its total shareholder return lagged the return of the Standard & Poor's stock index during the five-year period ended Feb. 28. But the brokerage said its shares outperformed a six-member peer group including Merrill Lynch , the world's largest brokerage company; Charles Schwab Corp. and Morgan Stanley, posting a 71% return compared to the peer group's 27% gain during that period.