Well that was interesting. Earlier last week I told you about Citi and the takeover of Wachovia. Well forget most of that. Late evening on Thursday (10/2) Wells Fargo came to the Wachovia table with an offer. A much better proposal than Citi. Wachovia accepted the ring and they were about to run off into the sunset. But wait, is Wachovia still married to Citi? Let’s take it to the People’s Court!
And they did just that over the weekend. A few judges seemed to disagree on what exactly Wachovia was binded to in their agreement with Citi. Citi insists Wachovia couldn’t court other suitors, Wells Fargo says, “hey we have stuff on paper, what do you got?”
Let’s recap:
At the end of September, Wachovia announced that Citi would buy their bank (not brokerage and insurance business) for $1 per share. At the end of the week, Wells Fargo offered $7 per share for the entire business.
Citi doesn’t like this one bit. The FDIC was going to help with the Citi deal so the government seems to favor the Citi deal. Wachovia and Wells Fargo support the Fargo deal because no government intervention will be needed in the deal. Wachovia shareholders favor it because they’re getting 7x what they would be getting and Wells is still getting a bargain.
Citi is claiming that Wachovia didn’t have the right to find new overlords and we don’t know what was signed and what wasn’t. The Fed has suggested that Citi and Wells split up the valuable branches everyone is after. Citi would basically get the northeast and mid-atlantic with Wells getting the southeast. I live in the southeast, this is the footprint you really want. I don’t think either side is interested in splitting the branches, primarily because…
Citi is suing Wachovia and Wells Fargo for $60 billion. $20 billion is to offset their “losses” from not doing the transaction and $40 billion is punitive. They have filed in New-York, which would probably help them since they are NY based (Wachovia based in NC, Wells Fargo in CA). I wish them luck, but since they only offered $2 billion to buy Wachovia, I don’t think they’ll much of either.
There was another rumor that Citi would consider an offer for the entire company, but with this lawsuit, it’s unlikely now.
The Weakonomist Snap Judgment*:
Wachovia claims to have not signed any kind of agreements not allowing them to find a new baby-daddy, if this is true, I don’t think Citi has much of a leg to stand on. Wells Fargo does have the papers signed, leaving me to think Citi won’t get much out of this. I’ve been wrong before though, so we’ll just have to wait and see. Citi doing a lawsuit and the large sum they’re asking for is indicative of someone looking to profit from a deal gone bad. It’s likely they won’t want Wachovia anymore, and I doubt the CEO of Wachovia will encourage his shareholders to approve a sale to a company that sued them for $60 billion.
*Full disclosure, my parents inherited stock in Wachovia as I’ve mentioned before. Selling to Wells would give them more for their money, leaving the possibility of a bias in my judgments. Also, I have stated I work for one of those big banks you’ve heard of. A deal going one way could make my job easier or harder, whether I work for one of the three in this story or one of the two I haven’t. Even though I don’t say who I work for, it must be clear that my comments are not the official opinion of my employer nor any other bank, they are my own.
Regardless of what happens, banking on the commercial and investment level is all kinds of screwed up. Remember these days my friends, this is a once in a century type of time.
Read Wells Fargo
Read Split
Read Lawsuit
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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