Citi, Wells Fargo Continue Battle Over Wachovia

Despite the agreement made Friday between Wells Fargo & Co. and Wachovia Corp. for the two companies to merge, drama was added to the situation Saturday when Citi was granted emergency injunctive relief extending the exclusivity agreement between Citi and Wachovia Corp. until further order of the court. In a flurry of legal activity over the weekend, Justice Charles Ramos of the State of New York’s supreme court issued the order over the objection of Wachovia ordering Citi and Wachovia to appear in court on Oct. 10. On Sunday evening, Wells Fargo issued a statement that the appellate court entered an order vacating Ramos’ order regarding Citigroup’s claimed exclusivity agreement with Wachovia Corporation. “We are pleased that the unfounded order entered yesterday has been vacated. Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia Corp.,” said the prepared statement. Citi wants to continue negotiations with Wachovia on the parties’ previously agreed-to transaction. Citi claims in court filings that on Sept. 29, Citi and Wachovia had an agreement-in-principle for Citi to acquire all of the banking subsidiaries of Wachovia. Citi was still working Friday on finalizing the agreements required to consummate its FDIC-assisted open bank transaction with Wachovia, according to Citi information. However, the Wells Fargo-Wachovia deal–which also includes all of Wachovia’s banking operations in a whole company transaction – requires no financial assistance from the Federal Deposit Insurance Corp. (FDIC) or any other government agency. Under the agreement, Wells Fargo will acquire all outstanding shares of common stock of Wachovia in a stock-for-stock transaction. In the transaction, Wells Fargo will acquire all of Wachovia Corp. and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits. The deal has been approved unanimously by the boards of both companies. “Given all the turmoil, I don’t think it is a good idea for Citi and Wells Fargo to be fighting over Wachovia. With lawsuits and TROs (temporary restraining order) and injunctions going on, the, latest I heard is that the [U.S. Department of the Treasury] is sitting down with Wells Fargo and Citi talking about divvying (Wachovia) up,” Bernard Weinstein, director of the Center for Economic Development and Research at the University of North Texas and of the Institute for Applied Economics, told CPN. “A temporary restraining order was issued by state judge and then lifted by a federal judge and lawsuits are threatened.” “If you look back to the late 80s and early 90s with the savings and loan bailout, there was a lot of litigation. With a financial crisis there will be a fair amount of litigation that accompanies it. But, it is not just one institution suing another, but class action lawsuits and fraud lawsuits. We just don’t want the litigation to get the upper hand. We want to get the credit markets working again and restore the faith in the credit institutions,” Weinstein said. “Both Citi and Wells Fargo want Wachovia’s depositor base. Wachovia has branches all over the South and West and it is a great way for either Citi and Wells Fargo to extend the franchise,” he added. “Because Wells Fargo was to assume the toxic assets, they see value overall in the Wachovia portfolio and that is some good news.” Under terms of the Wells Fargo agreement, Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock. The transaction, based on Wells Fargo’s closing stock price of $35.16 on Oct. 2, is valued at $7 per Wachovia common share for a total transaction value of approximately $15.1 billion. Wachovia has almost 2.2 billion common shares outstanding. The agreement requires the approval of Wachovia shareholders and customary approvals of regulators. Wells Fargo will record Wachovia’s credit-impaired assets at fair value. The acquisition is expected to exceed Wells Fargo’s internal rate of return goal and add to Wells Fargo’s earnings per share in the first year of operations, excluding integration costs, write-downs, transaction charges, and credit reserve build. Wells Fargo expects to incur merger and integration charges of approximately $10 billion. To maintain its strong capital position, Wells Fargo intends to issue up to $20 billion of new Wells Fargo securities, primarily common stock, according to Wachovia information. If approved, the combined company would be the top financial institution regarding deposit market share in 17 of its 39 community banking states including. Wells Fargo is being advised on the transaction by Wachtell, Lipton, Rosen & Katz and JPMorgan Securities Inc. was the exclusive financial advisor to Wells Fargo. Wachovia was advised on the transaction by Sullivan & Cromwell LLP, Goldman Sachs & Co. and Perella Weinberg Partners. Wachovia is one of the nation’s largest diversified financial services companies, with assets of $812.4 billion and market capitalization of $33.5 billion as of June 30.