The Battle for WB - Part II

What’s happening now is that on Saturday night, Citigroup (C) asked NY Supreme Court Justice Charles Ramos to issue a order blocking the sale between Wachovia (WB) and Wells Fargo & Co. (WFC). Citigroup’s claim is that WB breached the exclusive agreement (entire agreement found on my blog) between WB and C. C is seeking $60 billion in punitive and compensatory damages against WFC for interfering with the deal.

In response, WB asked U.S. District Judge John Koeltl to declare that the agreement between WB and WFC “is valid, proper, and not prohibited by a letter agreement between WB and C. Koeltl vacated Ramos’ order, however scheduled a hearing tomorrow (Tuesday) for all parties to present their case. This is a complicated matter that can last for a very long time since both WFC and C are large institutions with a lot of money, backing, and attorneys and neither party will back down without putting up a fight. What’s for certain is that both WFC and C has devoted considerable resources in terms of time and money to engage WB, therefore, both institutions have personal interest to get this deal done. The question is: Who will win?

When WB signed the agreement with C to sell their banking operations, it was noted that if WB did not sell part or all of their operations, they risked seizure by the FDIC the very same day. Therefore, the ultimate loser in this battle is WB with possibly only days to survive. In any case of failure, the FDIC would step in as it has done many, many times this year.

The most important section of the letter agreement between WB and C is the following paragraph:

"In consideration of the foregoing and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged. Wachovia hereby agrees that, during the period commencing on the date hereof and ending on Exclusivity Termination Date (Oct 6,2008), Wachovia shall not, and shall not permit any of its subsidiaries or any of its or their respective officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents or advisors ("representatives") to, directly or indirectly. (i) solicit, initiate or take any action to facilitate or encourage the submission of any Acquisition Proposal, (ii) enter into or participate in any discussions or negotiations with, furnish any information relating to Wachovia or any of its subsidiaries, assets, or businesses or afford access to the business, properties, assets, books or records of Wachovia or any of its subsidiaries to, otherwise cooperate in any way with, or knowingly assist, participate in, facilitate or encourage may effort by, any third party that is seeking to make, or has made, an Acquisition Proposal....."

However, many people argue that the letter agreement is non-binding. I am neither an attorney nor do I have inside information on the matter but it appears that this case is not clear cut. I do agree with the fact that the deal between WFC and WB may be the best for shareholders given that the deal goes not require government assistance, keeps WB intact, and benefits taxpayers. Ultimately, shareholders and regulators will have to approve of any deal and that cannot take place during litigation. What everyone can agree on is that a deal must be consummated quickly. This has once again placed uncertainty in the markets in a time where we don’t need any more uncertainty.

According to the Wall Street Journal, C and WFC may “carve out” WB with C taking WB’s northeast and mid-Atlantic branches and WFC taking southeast and California branches to reach a compromise. No deal has yet been consummated at the time of this writing.