Continuing in its ongoing acquisition mode, First Union Corp. announced yesterday that it will acquire Richmond, Va.-based Wheat First Butcher Singer Inc. for $471 million.
The move marks the first acquisition of a major brokerage firm by First Union, which has built its commercial banking presence over the last ten years.
While the deal is primarily driven by the desire to gain a foothold in the equity underwriting business, where Wheat First has a franchise, the move should also be a positive one for First Union's municipal business, said Ken Thompson, executive vice president and co-managing director of First Union's Capital Management group.
The municipal business "is a very important area for us and an area that the Wheat First acquisition enhances," Thompson said. He noted that Wheat First would complement First Union's provision of banking services to local governments on the Eastern seaboard and its recent efforts to grow public finance business with the hire of investment bankers.
"What we've done with the Wheat First acquisition, is really propel ourselves way ahead in (the municipal) business also," he said.
Thompson cited Wheat First's strengths in both the nursing and long- term care and multifamily housing areas, as well as the firm's overall municipal underwriting strength in Pennsylvania and West Virginia, which are also markets for First Union. "All it does is take the public finance effort that we had started and move it years ahead," he explained.
Thompson also noted that he does not perceive much overlap in municipal personnel as a result of the merger. However, he cautioned: "It is early on in the process."
In a separate matter, he said that it is unclear what First Union will do about Wheat First's relationship with Atlanta-based minority municipal firm, Jackson Securities Inc. Wheat First helps finance the boutique operation.
E. Bradford Tazewell 3d, a managing director in charge of institutional municipal sales at Wheat First, said yesterday that for now muni professionals at the firm are "cautiously optimistic," about the deal. However, he added: "There's a fair amount of uncertainty as to what happens to overlapping units."
Marshall Wishnack, chairman and chief executive officer of Wheat First, said the firm was prompted to find a partner among the commercial banks following the loosening of Section 20 regulations by the Federal Reserve Board last spring. "We decided to seek out a partner which would complement our strengths and give us a platform for future growth," he noted.
Upon completion of the deal, expected to close in the fourth quarter, Wheat First will operate under the name Wheat First Union, a division of First Union Capital Markets Corp. - First Union's Section 20 subsidiary. First Union is publicly traded, while Wheat First is employee-owned. Thompson said that the combination will make First Union the eighth largest retail brokerage nationwide, with 2,000 locations in 19 states.
Most observers agreed yesterday that the transaction will generally be a positive one for both firms.
Worth T. Blackwell, head of public finance at St. Petersburg, Fla.- based Raymond James & Associates Inc., said the deal should make First Union stronger in public finance. "It certainly looks like a good acquisition by First Union," he said. "I know First Union has been staffing up in Florida and Wheat hasn't, so there's no overlap there." However, he added that there may be some doubling of efforts in Pennsylvania.
"There's probably not a lot of overlap on the investment banking side," remarked Michael Schroeder, an analyst from Wasmer Schroeder & Co., while noting that there may be some competition for accounts among the combined sales force.
R. Harold Schroeder, an equity analyst with Keefe Bruyette & Woods Inc., said that buying a brokerage firm marks a significant change in strategy from First Union's previous tack of internal growth on the securities side. But he called Wheat First a good buy and said the price paid will offset the hefty $3.25 billion paid for Richmond-based commercial bank Signet Banking Corp., where he believes First Union "overpaid." Most of First Union's other acquisitions have been in the banking areas and, according to a recent filing with the Securities and Exchange Commission, number 70 since the mid 1980s.
