<http://online.wsj.com/article_print/0,,SB110779147630847722,00.html> The Wall Street Journal February 7, 2005 12:19 p.m. EST MARKETS Riggs Sale to PNC Is Called Off By MITCHELL PACELLE and NIKHIL DEOGUN Staff Reporters of THE WALL STREET JOURNAL February 7, 2005 12:19 p.m. WASHINGTON -- The sale of beleaguered Riggs National Corp. to PNC Financial Services Group has been called off. The board of Riggs unanimously rejected PNC's demands to alter the terms of the agreement, the company said in a news release. In addition, Riggs is suing PNC in Superior Court for the District of Columbia saying it has been damaged by PNC's decisions not to proceed with the merger after Riggs had devoted the past six months to preparing for the merger and taking various actions at PNC's behest. Riggs's banking subsidiary has been embroiled in a massive money-laundering scandal for the past several months and recently pleaded guilty to a criminal count of violating the Bank Secrecy Act. Investors had hoped that the guilty plea, part of a settlement of a Justice Department investigation that also included a $16 million fine, would clear the way for PNC to complete its acquisition of Riggs, a venerable financial institution in the nation's capital. PNC struck its deal to buy Riggs last July -- in a transaction valued at the time at $779 million in cash and stock -- just as the Riggs scandal was starting to reverberate. However, in recent weeks PNC has balked at going ahead with the deal at the agreed-to price, saying the business has undergone "material" deterioration. In what appears to be a pre-emptive strike, Riggs is making the first legal move, saying PNC isn't living up to the terms of the agreement. PNC had been proposing a revised tentative agreement that would offer Riggs shareholders $19.32 a share and a contingent security of 83 cents a share, according to the news release. But this proposal, in addition to being well below the earlier offer, would possibly have been subject to further revision and was contingent on other factors as well. PNC officials couldn't be reached for immediate comment. Like most merger agreements, PNC's deal with Riggs includes a "material adverse change clause" that entitles it to walk away should there be a dramatic change in the business. However, recent legal history has shown that it is difficult for a buyer to back out of a deal by invoking a "MAC" clause. In 2001, a Delaware Chancery Court ruled that Tyson Foods Inc. couldn't terminate its planned acquisition of IBP Inc. because of a decline in IBP's earnings and accounting irregularities at an IBP unit. To avoid a costly legal battle, companies end up renegotiating transactions if there is a significant deterioration in a seller's business. After settling the Justice Department's criminal investigation on Jan. 27, Riggs, which is controlled by the Allbritton family, said that it expected to make an announcement about the "status" of the agreement on or about Feb. 4. That date passed without any statement. Now Riggs is likely to try to drum up interest from other bidders. Riggs had been prohibited from entering into discussions with other parties under terms of the agreement with PNC. It is now, however, sending a letter to the board saying it now believes it can enter into merger discussions with other banks. Separately, Riggs said it expects to report a loss for the fourth quarter and for 2004 and plans to shut its London branch as it focuses on domestic banking. -- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'