Wachovia Corp. is acquiring A.G. Edwards Inc. to create one of the biggest retail brokerage firms in the U.S.

The firms announced an agreement under which Wachovia will acquire A.G. Edwards, which will be combined with Wachovia Securities, LLC, to create a retail brokerage firm with US$1.1 trillion in client assets and nearly 15,000 financial advisors.

Under the terms of the agreement, A.G. Edwards’ shareholders will receive 0.9844 shares of Wachovia common stock and US$35.80 in cash for each of their A.G. Edwards common shares. Based on Wachovia’s share price at the close of business on May 30, the transaction would be valued at US$89.50 per A.G. Edwards share.

The combined full-service firm will have 3,350 brokerage locations, including 1,500 dedicated retail offices in all 50 states and the District of Columbia. It will offer advice to clients based on research from multiple providers, using an open architecture platform, and providing access to a broad suite of financial products and services.

The combined retail brokerage organization will be headquartered in St. Louis. Other A.G. Edwards businesses including research, underwriting and investment banking, mutual funds and trust will be consolidated into the appropriate Wachovia lines of business. The combined firm will operate as Wachovia Securities. The merger is expected to be completed in the fourth quarter of 2007 and integration is expected to be completed by the end of the first quarter of 2009.

The combined organization is expected to benefit from significant annual expense efficiencies, estimated at US$395 million after tax by 2009. These efficiencies represent 10% of the combined firm’s most recent fiscal year-end expense base.

Wachovia is expected to record merger-related and restructuring charges and exit cost purchase accounting adjustments of approximately US$860 million after tax in connection with the transaction over the 18-month integration period. The transaction is anticipated to be accretive to Wachovia’s earnings per share excluding merger-related and restructuring expense and intangibles amortization in the first full year following the closing, not including the effect of one-time charges.

Completion of the merger is subject to A.G. Edwards’ shareholder approval and normal regulatory approvals.

Daniel Ludeman, a 27-year veteran of the brokerage industry, is currently president and CEO of Wachovia Securities and will be the president and CEO of the combined brokerage firm. Robert Bagby, who has been chairman and CEO of A.G. Edwards since 2001, will serve as chairman of the combined brokerage firm. He joined A.G. Edwards in 1975.

“This combination will bring together two similar companies determined to preserve and enhance a corporate culture that is focused on attracting the nation’s best financial advisors, respecting client relationships, providing unbiased advice and delivering excellent client service,” said Bagby. “In assessing potential merger partners, we looked carefully for an organization that would offer A.G. Edwards the scale and enriched product suite required to fuel continued growth, while preserving the characteristics and culture that have made our organization so successful. In Wachovia Securities, we believe we found the perfect partner.”

“The long-term growth opportunities of the brokerage industry are extremely compelling to Wachovia, and we have long expressed our interest in growing this business both organically and through acquisition,” said Ken Thompson, Wachovia chairman and CEO. “This combination with A.G. Edwards, which is widely considered one of the most highly regarded remaining independent brokerage firms in the industry, will further enhance our scale and relevance.”

John Strangfeld, vice chairman of Prudential Financial, Inc., which currently owns 38% of Wachovia Securities, said, “We are very pleased with our investment in Wachovia Securities and our partnership with Wachovia management. We believe the combination of A.G. Edwards and Wachovia Securities is highly attractive and takes the business to a new level of prominence and promise. We have complete confidence in management’s ability to make this deal successful.”