Earlier this year, Bank of America
In a press release issued early Monday morning, Wachovia announced that it will pay a small (4.5%) premium to acquire all shares outstanding of California-based Westcorp
From where this Fool sits, the deal looks good for all concerned. Granted, Wachovia is paying higher price-to-book ratios for both Westcorp and its subsidiary -- the former sports a P/B of 2.2, and its daughter company is being priced at 2.5, while Wachovia itself sells for just 1.7, according to Capital IQ.
However, the smaller banks are both premium products that should help to boost Wachovia's bottom line. Wachovia earns just a 1.3% return on its assets, while the more profitable businesses out in California earn its new acquisitions 1.5% and 1.9%, respectively. In the high-asset world of banking, those tenths of a percent add up, and they almost certainly justify the small premium that Wachovia will be paying.
On the other side of the table, shareholders in the target banks will receive shares in a larger, sturdier bank (this is a stock-based purchase), as well as a 4% forward dividend yield to replace the 1% paid by Westcorp and the measly 0.2% that WFS expects to shell out over the next 12 months.
Other beneficiaries of the deal appear to be -- and I'm speculating here because of the dearth of publicly available information -- companies such as Corillian