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Riggs, PNC Reach New Merger Agreement

District-Based Bank to Be Bought for $20 a Share; Conditions Related to Lawsuits Dropped

By Terence O'Hara
Washington Post Staff Writer
Friday, February 11, 2005; Page E01

Riggs National Corp.'s merger with PNC Financial Services Group Inc. was abruptly revived yesterday, clearing the way for the demise of what was once Washington's premier bank after a mortifying year of scandal.

On or shortly after June 1, PNC signs should begin to appear over Riggs Bank's 51 branches in the Washington area -- if all goes as planned. Riggs customers should see little change, though PNC has promised to expand its branch network in the Washington area in the next few years, making the Washington area a more competitive market for consumer accounts.

PNC agreed to pay $20 a share for Riggs, which has 51 Washington area branches. (Larry Downing -- Reuters)

The Offers An overview of the proposals between Riggs Bank and PNC Financial Services Group Inc.
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Press Release
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Riggs National Corp.
_____Related Coverage_____
Buying Riggs Has Its Draws, Drawbacks (The Washington Post, Feb 9, 2005)
Riggs Files Suit Against PNC Over Collapse Of Merger Talks (The Washington Post, Feb 8, 2005)
Riggs Negotiating With PNC Over Lower Sale Price (The Washington Post, Feb 2, 2005)
Special Report: Riggs Bank

The merger would mark the end of a troubling period for Riggs, in which its once-lustrous reputation was damaged. Run by Joe L. Allbritton for 20 years and by his son Robert for the past four, the company's financial performance has been declining. In addition, during the past year, the bank has been hit with a record $25 million fine for its handling of suspicious transactions for former Chilean dictator Augusto Pinochet and the rulers of oil-rich Equatorial Guinea.

It also has pleaded guilty to criminal charges that it violated laws designed to prevent money laundering. Sentencing, including a judge's decision on whether to approve a $16 million penalty, is scheduled for March 29.

Riggs agreed to be acquired by PNC for $766 million -- a price PNC later decided was too high. Attempts to renegotiate the deal fell apart Monday morning, when Riggs walked away from the talks, filed a lawsuit against PNC and began to contact other potential acquirers.

But the talks began again almost immediately, in large part because of the personal intervention of PNC's chief executive. A representative from PNC called a Riggs attorney to resume the talks Monday night. The two sides agreed late Wednesday to $20 a share in cash and stock, which amounts to about $652 million. The original price was $24.25 a share.

Riggs agreed to take more than $100 million off its original price. But Riggs also demanded that PNC drop conditions in its previous offer that pegged the price to certain conditions, including the resolution of lawsuits against Riggs.

The Allbrittons would collect about $260 million in the merger.

"We are looking forward to our entry into the extremely appealing Washington, D.C., marketplace, and we are confident that the Riggs franchise will provide us with an excellent platform from which to grow," James E. Rohr, chairman and chief executive of Pittsburgh-based PNC, said in a written statement. "We have assessed the remaining risks to Riggs, and we believe we have reached a revised agreement that is fair to all parties."

Riggs would add about $5.9 billion of assets to the $79.72 billion of PNC, which has branches stretching from the Washington area to Indiana.

The merger was approved by both companies' boards yesterday but is subject to approval by Riggs and PNC shareholders and regulatory agencies, all of which are expected. Riggs's largest shareholder, the Allbritton family, agreed yesterday to vote for the new deal, sources said.

Riggs, which three days earlier accused PNC of bad faith and trying to "virtually steal" the bank, was conciliatory yesterday. "Our companies have forged a strong working relationship over the last six months, and we are looking forward to resuming our integration activities," said spokesman Mark N. Hendrix.

The companies said the deal would close as soon as possible but no later than May 31, a month later than the deadline for the original deal. Riggs agreed to dismiss its lawsuit against PNC.

"PNC overplayed their hand," said Friedman, Billings, Ramsey & Co. analyst Gary Townsend. "Riggs called their bluff."

The guilty plea, negative headlines, tens of millions of dollars in legal fees and outstanding lawsuits against Riggs and its directors prompted PNC to lower its offer. Invoking the "material adverse change" clause in the merger agreement, PNC asserted that company's legal problems had damaged Riggs to such an extent that PNC was no longer obligated to what it had agreed to pay.

Riggs agreed to renegotiate, but PNC insisted on several conditions that were unacceptable to Riggs, including settling one of the lawsuits and setting aside a reserve to cover costs of other civil litigation. PNC offered $19.32 a share in stock and cash -- with the final price subject to downward revision -- plus a "contingent security" of 83 cents a share that could be drawn down to cover legal costs. Unwilling to accept less than $20 a share or to settle a lawsuit that Riggs lawyers believed was without merit, Riggs's board rejected the offer Monday morning and authorized the lawsuit against PNC.

From the beginning, in talks with PNC and other potential acquirers, Riggs had insisted on a definite price: The Riggs board did not want to ask shareholders to accept a price that could be adjusted or was uncertain.

"They wanted a firm price and the assurance of a closing," said one source.

Riggs ended the talks Sunday and sued the next day.

Eugene A. Ludwig, a former U.S. comptroller of the currency who has been consulting Riggs and knows Rohr well, got negotiations running again. After learning Monday of the breakdown in talks, Ludwig, on a flight to Australia, called Riggs Bank chief executive Lawrence I. Hebert and Rohr to see if there was "any goodwill left in the room," said a source familiar with the conversations. Shortly after, a PNC lawyer called Riggs's merger counsel, Sullivan & Cromwell LLP, saying PNC was willing to do a deal. Sources spoke on condition of anonymity because they were not authorized to speak for either company.

At that point, said sources involved in the negotiations, Rohr took personal control of the negotiations. In previous talks, Rohr's subordinates directed PNC's negotiating team of lawyers from the Wall Street law firm Wachtell, Lipton, Rosen & Katz.

Five years ago, Rohr held preliminary merger discussions with Joe Allbritton, who was then chief executive and whose family controls about 40 percent of Riggs. Though that deal never came to fruition, sources said, Rohr remained enamored of the wealthy Washington market's potential for growth. Reluctant to let the prize slip away -- or have his company's internal deliberations over the Riggs deal aired in a courtroom -- Rohr steered PNC's negotiating stance with Riggs this week back to one of price alone, said sources familiar with the matter.

"It was clear that after the lawsuit the tenor changed dramatically," said a source involved in the negotiations. "Rohr became much more actively involved. At that point, there wasn't a lot of messing around."

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