Citi claims legal high ground as Wells Fargo snatches Wachovia

Citi claims legal high ground as Wells Fargo snatches Wachovia

West Coast bank Wells Fargo says it expects to incur merger integration costs of $10 billion as it agrees a deal to acquire Wachovia, snatching the North Carolina-based bank from under the nose of FDIC-approved suitor Citi.

Details of Wells Fargo's surprise $15.1 billion offer come just days after Citi agreed to acquire all the banking subsidiaries of Wachovia under a loss-sharing deal brokered by the Federal Deposit Insurance Corporation (FDIC). The deal did not include Wachovia's securities brokerage and mutual fund units.

Citi said it expected to realise $3 billion of consolidation synergies from its acquisition of debt-hit Wachovia under the government-backed deal.

However San Francisco-based Wells Fargo has now put forward an all-stock deal for Wachovia - which it says has been "approved unanimously by the boards of both companies" - which requires no government-backing.

Under the offer, Wells Fargo will pay 0.1991 of a share of common stock in exchange for each common share of Wachovia. The deal - which is based on Wells Fargo's closing stock price of $35.16 on Thursday - values Wachovia at $7.00 per share, for a total transaction value of approximately $15.1 billion.

Wells Fargo says it expects to incur merger and integration charges of approximately $10 billion. The combined company will base its East Coast retail and commercial and corporate banking business in Charlotte North Carolina - where Wachovia is based. St Louis will remain the headquarters of the Wachovia Securities unit.

Unlike the Citi deal, the Wells Fargo proposal enables Wachovia to keep its business in one piece.

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," says Robert Steel, president and CEO of Wachovia. "The market presence and composition of our businesses, along with our service-oriented cultures, are extraordinarily complementary and this combination creates great potential for sustained stability and growth."

Wells Fargo chairman, Dick Kovacevich, says the deal "provides superior value compared to the previous offer to acquire only the banking operations of the company".

"Wachovia's brokerage and asset management businesses, which would have been left behind in the prior proposal, are tightly interwoven with Wachovia's core banking business - and this agreement avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia's team members and customers," says Kovacevich.

Unsurprisingly Citi is unhappy with the move and in a statement says Wachovia's agreement to a transaction with Wells Fargo is "in clear breach of an exclusivity agreement between Citi and Wachovia".

The exclusivity agreement provides, among other things, that Wachovia will not enter into any transaction with any party other than Citi and will not participate in any discussions or negotiations with any third party.

Citi says Wells Fargo's conduct "constitutes tortuous interference with the exclusivity agreement" and it was "negotiating in good faith" and had nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction.

"Citi has demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction, any conduct in furtherance thereof, or any other act in violation of the exclusivity agreement. Citi has substantial legal rights regarding Wachovia and this transaction," says the statement.

Citi says it has also been providing liquidity support to Wachovia Bank since Monday's announcement.

Comments: (0)