Breaking News: Wells Fargo Buys Wachovia

There is some huge breaking news this morning. Wells Fargo (WFC) is purchasing Wachovia (WB) for a significant premium, pushing the former suitor, Citigroup (C) and its help from the Fed, out of the picture.

There is something exciting and fascinating about this market. When the Street thinks it finally has things figured out, something goes and throws a really big wrench into the works.

Take Wachovia for instance. Just a few hours ago, we all thought Citigroup was going to take ownership of the majority of the failing bank’s assets. It was a deal propped up by the Federal Reserve, but one Wall Street embraced and even welcomed.

It is not going to happen.

Instead, Wells Fargo, one of the original Wachovia suitors, is stepping in and taking over the acquisition. Citigroup appears to be totally out of the equation, getting Bernanke and the Fed off the hook.

Move over, coming through

Just a few days ago, Wells Fargo decided to pass on Wachovia, telling us it was not happy with the company’s books and mortgage debts. Now, it is forcing a major competitor in a ditch trying to get its hands on the company at a substantial premium. Wells Fargo will pay $7 per share, an 80% premium over yesterday’s trading price.

This news proves Warren Buffett is on the ultimate value-hunting spree. As a major shareholder in Wells Fargo, you know he had something to do with this deal. Buffett and his Berkshire Hathaway (BRK.B) have spent tens of billions over the last week or so, scooping up stakes of some of the nation’s largest and strongest companies at hugely discounted prices.

If you were one of the brave investors willing to buy shares of Wachovia at their lows this week around $0.79, your wisdom is evident. With the news from Wells Fargo this morning, shares of Wachovia are soaring, trading in the pre-market hours for over $6.30.

As this market settles, look for more and more surprise deals like this. Strong companies with large cash reserves are either going to buy their competitors or crush them. It will be very interesting and very profitable.

More on this news on the way.

Comments

[discov:]

We will see if it's at all profitable for WFC. Right now there is no proof of that.
concisetrading.blogspo.../
Ryan

2008 Oct 03 11:37 AM

[Mr. B:]

This is far from over.

Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

2008 Oct 03 12:06 PM

[DougM:]

And yet, this deal makes much more sense for Wells because they don't have much of a presence on the east coast. With this deal, Wells finally goes truly national. I hope it goes through. The Citi deal was contingent on shareholder approval anyway. So, why would a shareholder not simply vote that deal down and take this one?

2008 Oct 03 12:20 PM

[Stan Pennin...:]

THANK YOU MR. BUFFET FOR BEING A GREAT AMERICAN!!!!
Your move may be seen by many as just business, but I know you have stood in the Gap for America. I personally thank you for helping HSBC to understan that enough is enough! Many of the great men who sacrificed their all to give this country it's birth did so by listening to their hearts and then against all good reason acted on what they knew was right. You Sir, have today, joined the ranks of those men.
I pray God's blessings and protection over you.
From a greatful American,
Stan Pennington
Patriots for Christ
.

2008 Oct 04 06:49 AM

[directcommu...:]

If buffet could have had 700 billion he would have done the bail out himself for profit. The government is going to make a killing off of the 700 bil bail out and the 85 billion dollar aig investment.

2008 Oct 05 01:31 PM

[sumosama:]

I wouldn't count the chickens just yet...don't forget who one of the Vice Chairs at Citi is (Bob Ruben).

2008 Oct 06 01:17 PM