Responding angrily to news that Wachovia aims to merge with Wells Fargo, Citigroup, which on Monday struck a deal in principal to acquire Wachovias banking businesses for about $2.16 billion, demanded that Wachovia and Wells Fargo terminate their proposed $15 billion transaction.
In a statement, Citigroup claimed the agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia. In addition, Wells Fargos conduct constitutes tortious interference with the exclusivity agreement.
The exclusivity agreement, according to Citi, prevents Wachovia from entering into any transaction with any party other than Citi.
Citi was negotiating in good faith and nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction that was announced on Monday, the bank indicated. The value of the Citi agreement to Wachovia shareholders was substantially in excess of Wachovias closing price on Thursday, October 2nd.
Separately, the Federal Deposit Insurance Corp. indicated that the Federal Reserve and the Office of the Comptroller of the Currency have yet to review the new Wells Fargo proposal and the issues that it raises. The agency added in a statement that regulators will be working with the parties to achieve an outcome that protects all Wachovia creditors, including depositors, insured and uninsured, and promotes market stability.
Even so, shares of Wachovia remained sharply higher in afternoon trading as investors cheered the new deal. The stock was up $2.82, or about 72%, to $6.73 after reaching $7.05 in early trading. The stock closed at $3.91 on Thursday.
Wachovia is led by former Treasury Department official Robert Steel.
The bid from Citi would have left Wachovia with its A.G. Edwards brokerage and the Evergreen mutual fund operation.
It provides superior value compared to the previous offer to acquire only the banking operations of the company,'' Wells Fargo Chairman Richard Kovacevich said in a news release. Wachovia shareholders will have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world's great financial services companies.
In recent weeks, Mr. Kovacevich said that Wells Fargo was buying with both hands. Given the distressed state of financial assets, he said he felt like a kid in a candy store.
Wells Fargo said it will acquire all of Wachovia's businesses, preferred equity and banking deposits. This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support, Mr. Steel said in a statement.
John Goff is an editor at Financial Week, a sister publication of Pensions & Investments