Riggs Sale to PNC Is Called Off

[R.A. Hettinga]

<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.


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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
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