ATLANTA -- SunTrust Banks Inc. filed a lawsuit on May 23, seeking to nullify an agreement between Wachovia Corp. and First Union Corp. requiring a huge "breakup fee" for First Union if another bank buys Wachovia, according to an Associated Press report.
The lawsuit, filed in Fulton County Superior Court in Atlanta, challenges the legitimacy of Wachovia granting stock options to First Union as a deterrent to rival merger bids, including SunTrust's.
The options would be worth at least $780 million and serve to "lock up the low-premium First Union transaction," SunTrust said in its lawsuit.
The lawsuit was filed one day after Wachovia's board of directors voted 14-1 to reject what Wachovia chairman L.M. "Bud" Baker described as a "hostile" $13.7 billion acquisition proposal from SunTrust.
With its vote, the board confirmed its intention to continue with a plan to be bought by First Union for $12.9 billion.
SunTrust said it was forced to take legal action after its offer was rejected.
A statement issued by Wachovia called the SunTrust lawsuits "predictable but unfortunate action from a hostile party attempting to divert attention from the financial weaknesses in its proposal."
Meanwhile, Wachovia and First Union went to state court in North Carolina seeking a declaration that SunTrust cannot invalidate the stock option agreements between the two banks, Wachovia said.
In a separate statement, Wachovia's board asked SunTrust to end its takeover bid, calling the effort "expensive, time-consuming and disruptive to customers and employees of both organizations."
A SunTrust-Wachovia combination would create the ninth-largest bank holding company in the United States, while a merger of First Union and Wachovia would form the nation's fourth-biggest banking company.
