Filed under: Deals, Law, Citigroup Inc. (C), Wachovia Corp (WB), Wells Fargo (WFC)
And you thought it would be easy. Nothing ever is. Citigroup Inc. (NYSE: C) has issued a statement recently saying “Wachovia Corp. (NYSE: WB)’s agreement to a transaction with Wells Fargo & Co. (NYSE: WFC) is in clear breach of an Exclusivity Agreement between Citi and Wachovia. In addition, Wells Fargo’s conduct constitutes tortious interference with the Exclusivity Agreement.”
The exclusivity agreement also guarantees that Wachovia will not enter into a transaction with a third party, including any discussions or negotiations. Moreover, it “provides that the parties would be irreparably harmed by any breach of the agreement…” Citi claims it has also been providing liquidity support to Wachovia Bank since Monday’s announcement.
Citigroup shares plunged about 11% earlier in the day, but are now recovering somewhat, down “only” 9.2%. Meanwhile WB shares remain up around 70% but saw a dip when the Citi statement was issued. WFC shares are about 5% higher.
If this is the case and Citi has “substantial legal rights” here and the $15.4 billion stock swap deal — $7 per share of Wachovia, or 79% over Thursday close — between Wells Fargo and Wachovia is terminated, as per Citi’s demand, we’ll definitely see Wachovia shares go lower. Still, regulators might get involved. While Citigroup believes regulators will intervene on its behalf and the FDIC director even said so, that might not be the case as the Wells Fargo deal is better to the one Citi offered. Not only is Wells Fargo buying all of Wachovia’s operations, but it doesn’t require FDIC guarantees. Citi was going to purchase just the banking operations and required FDIC guarantees.
If the deal with Well Fargo remains, though, Citi will be hurt as the transaction would have propped up its deposit base and improved its balance sheet. Citi stock might decline even further.
I just find it odd that banks are actually fighting over a distressed Wachovia in these times. Perhaps this is a good sign?
Entries (RSS)