After two months of speculation, Wachovia and Prudential have come together on terms of their brokerage joint venture. The deal creates the third largest retail brokerage firm in the US, according to the firms.

Donald A. McMullen, Jr., president of Wachovia's Capital Management Group, predicts that the combination will allow the firms to slice $220 million after tax from its operating expenses by 2005. In the meantime, the new company will record merger-related and restructuring charges and exit cost purchase accounting adjustments of approximately $681 million after tax in connection with the transaction over the 18-month integration period.

The deal combines the retail brokerage and clearing arms of both firms into a new Richmond, Virginia-headquartered entity to be called Wachovia Securities once the integration of the two firms is completed. The merger itself is expected to close in the third quarter. Wachovia will own 62 percent of the combined firm and control three board seats while Prudential will own the remaining 38 percent and control two board seats.

The firms claim the combined brokerage will control client assets of $537 billion and had an estimated combined net revenue of $4.2 billion in 2002. It will also have more than 3,500 brokerage locations, including 791 dedicated retail offices in 48 states and the District of Columbia.

Twenty-five year Prudential veteran John Strangfeld, a vice chairman of Prudential Financial and leader of that company's Investment Division, which includes the retail securities brokerage and clearing operations, will serve as chairman of the combined firm. Strangfeld, a 25-year employee of Prudential, has led Prudential Securities for the past two years. He will continue in his position as a vice chairman of Prudential Financial.

Daniel J. Ludeman, currently president and CEO of Wachovia Securities, will be the president and CEO of the new firm. He is a 24-year veteran of the brokerage industry. Strangfeld will report to Donald McMullen.

The units of Prudential included in the new firm are: the Private Client Group, which includes Prudential Securities' domestic and Latin American branches, and Wexford Clearing Services Corporation, as well as all supporting functions for these businesses, according to the firms.

Excluded from the new firm are Prudential Securities' widely acclaimed, independent equity research department and its domestic and international equity sales and trading group. These will continue to operate as a unit of Prudential Financial and will be called the Prudential Equity Group. Other Prudential units excluded from the new firm are: Prudential's international private client and global derivatives operations and the Prudential Bank and Trust.

The units of Wachovia included in the new firm are: the entire Wachovia Securities retail brokerage firm, including its Private Client Group, its in- bank Investment Services Group and its Independent Brokerage Group, which includes First Clearing Corporation, as well as selected supporting functions.

The new correspondent clearing unit will operate under the Wexford name and will be among the nation's top five clearing firms, serving approximately 200 broker-dealers nationwide.

Wachovia's Equity Capital Markets group, which conducts equity research, underwriting, and sales and trading for retail and institutional clients under the Wachovia Securities brand, will continue to operate separately from the retail brokerage group.  

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