Creating a 'Win-Win' in M&A, Part V: How BB&T Guarded Against Hostile Bids

Successful partnerships cannot be forced. And yet successful partnerships of all types are essential to human well-being. Government is all about force. Governments have police, armies, and jails to enforce their edicts. Therefore, in the long term government-forced partnerships will not work. Again, you may say there are government/private "partnerships" in which the partnership is voluntary. Maybe it is voluntary in terms of the stated partner; however, if taxpayer money is being used, then one of the "partners," the taxpayer, is not a voluntary participant. The failure rate in government/private partnerships is high, especially if the secondary consequences are properly considered.

Because successful partnerships must be based on voluntary exchange and the government is fundamentally about force, the government should limit its activity to preventing the initiation of force by private individuals if we want optimal outcomes in terms of economic growth.

CEOs tell stories. Hopefully, you will find the following stories interesting even though they are peripheral to our discussion.

In 1995, my company, BB&T, and another bank our size, Southern National, entered into a merger of equals (which turned into a very successful transaction, something that is unusual for mergers of equals). In any event, right after the merger was consummated there was a special meeting of the North Carolina Bankers Association at Bank of America's (then NationsBank) headquarters in Charlotte, North Carolina. When I walked into the meeting, Hugh McColl, CEO of NationsBank, immediately greeted me with the comment, "Allison, you are lucky to be here. We had decided to take you guys out of your deal, and we were an inch from making an offer but got concerned you might find a way to sell to somebody else." I quickly went to the bathroom to catch my breath. A near-death experience. (Sorry, I did not see a bright light.)

A little background, NCNB/NationsBank/Bank of America (same organization with new names) and First Union/Wachovia (the same organization with different names) had both coveted BB&T. The only way I was able to keep either organization from making an unfriendly offer was to play them against each other. I told Hugh that he could make an offer that would probably force us to sell, but I thought I could direct the sale to First Union. I told Ed Crutchfield, who was CEO of First Union, that if he forced the issue, I thought I could direct the sale to Bank of America. Of course, in order to earn the right from a shareholders' perspective to remain independent, we had to outperform the potential acquirers, which we did.

This is a complete aside, but an interesting story. The weekend before Wachovia (which had been First Union) decided to purchase Golden West, Ken Thompson, Wachovia's CEO, had tried very hard to get me to come to Charlotte to participate in a golf tournament. I am fairly certain that he intended to put a hard press on for Wachovia to purchase BB&T. Bank of America was preoccupied at the time. I did a song and dance to avoid the golf tournament.

Golden West was the leading proponent of the "pick a payment" mortgage. The Golden West acquisition contributed significantly to Wachovia's subsequent failure and sale to Wells Fargo. Since BB&T went through the financial crisis without a single quarterly loss, if Wachovia had bought BB&T instead of Golden West, the financial industry would look very different today. Oh well.

John Allison is the president and CEO of the Cato Institute and a former chairman and CEO of BB&T. This article is adapted from his latest book, "The Leadership Crisis and the Free Market Cure: Why the Future of Business Depends on the Return of Life, Liberty and the Pursuit of Happiness."