On the prowl: Wachovia Bank in Virginia

New York/Philadelphia, May 8 (Reuters): Wachovia Corp, the No. 4 US bank, on Sunday said it will buy Golden West Financial Corp for $25 billion to sharply boost its exposure to the fast-growing western United States.

In its biggest purchase, Wachovia will pay a combination of cash and stock totalling $81.07 per share ? a 15 per cent premium to Golden West’s closing share price on Friday.

Oakland, California-based Golden West, the No. 2 US savings and loan firm, will markedly increase Wachovia’s presence in California, which Wachovia first entered on March 1 when it bought Westcorp Inc and its WFS Financial Inc unit.

The deal will also substantially raise Wachovia’s exposure to the mortgage industry, which most analysts expect to slow as interest rates rise. Golden West is best known as an adjustable-rate mortgage lender, and runs lending operations under the World Savings Bank name in 39 US states.

Wachovia will pay 1.051 of its shares to each Golden West shareholder, along with $18.65 in cash.

The Charlotte, North Carolina-based bank said the combined companies will have $669 billion in assets and a market capitalisation of $117 billion. It also said the acquisition would extend Wachovia's banking franchise to within reach of 55 per cent of the US population.

Wachovia expected the deal to result in $53 million in annual cost savings phased in over two years, and forecast it would increase earnings per share by the end of its second year after closing. Wachovia, which will take a $293-million deal-related after-tax charge, forecast an internal rate of return of 17 per cent to its shareholders.

A merger, if it closes in the fourth quarter as the companies expect, would cap the careers of Herbert and Marion Sandler, Golden West’s co-chairmen and co-chief executives.

The husband and wife, now in their mid-70s, founded the thrift in 1963. As of February 28, they owned 59.99 million Golden West shares, or 19.4 per cent, a proxy filing shows. The shares were worth about $4.23 billion on Friday, and are worth almost $4.9 billion based on Golden West’s $25 billion deal value.

Wachovia CEO Ken Thompson has built his bank through several mergers, most recently the 2004 acquisition of SouthTrust Corp.