Wachovia Dumps Citigroup, Merges with Wells Fargo

On Friday, Wachovia Corporation (WB) said it agreed to be acquired in a $15.1 billion all-stock deal by San Francisco-based Wells Fargo & Co., (WFC). The merger agreement between the two banks includes all of Wachovia’s banking operations in a whole company transaction requiring no financial assistance from the FDIC or any other government agency.

Under the terms of the deal, which has been approved unanimously by the boards of both companies, Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock for every share of Wachovia, valuing the Charlotte, N.C.- based bank at about $7 per share. The transaction is based on Wells Fargo’s closing stock price of $35.16 on October 2, ‘08 which translates to a 79% premium for Wachovia’s shareholders over the stock’s Thursday closing price of $3.91. Wachovia has almost 2.2 billion common shares outstanding.

In conjunction with the deal, Wells Fargo expects to incur merger and integration charges of approximately $10 billion. To maintain its strong capital position, Wells Fargo intends to issue up to $20 billion of new securities, mainly common stock.

Robert K. Steel, President and CEO of Wachovia Corp. said:

Today’s [Friday] announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies: our shareholders, customers, colleagues and communities. This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support. The market presence and composition of our businesses creates great potential for sustained stability and growth.

The combined company will have a strong presence in Charlotte, which will be the headquarters for the combined company’s East Coast retail and commercial and corporate banking business. St. Louis will remain the headquarters of Wachovia Securities.

Wells Fargo will now be catapulted from being just a predominately West Coast bank into a national institution with over a trillion dollars in assets, deposits of $787 billion, and over ten thousand branches.

The deal however, comes four days after Citigroup (C) agreed to purchase Wachovia’s banking operations for $2.16 billion in a deal arranged by the FDIC. Citi is now demanding that Wachovia terminate the $15.1 billion takeover agreement announced Friday and abide by the terms of its earlier deal with the New York-based firm.

In a statement, Citigroup said:

Citi has substantial legal rights regarding Wachovia and this transaction. Wachovia’s agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia. [Bloomberg]

For its part the FDIC issued a statement reiterating its stance:

The FDIC, said Chairwoman Sheila Bair, stands behind its previously announced agreement with Citigroup. The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.

It is important to point out this deal does not require help from the government. If Wells Fargo sees real value in Wachovia, it raises confidence in other banks as well. Let’s not forget the fact that only two months ago, CEO John Stumpf implied it was highly unlikely his company (Wells Fargo) would pursue a large East Coast rival. Confidence remains an element that must be restored at this point in order to get the financial system working again, and Friday's deal is definitely a step in the right direction.

Disclosure: None

Comments

[infoplease:]

As a long time Wachovia shareholder I don't know why we need Citi or WF since the bail out has been signed. Sell the bad debt to the goverment and start with a clean slate. Wachovia has many assets, such as a great retail bank and a very well thought of brokerage arm. We were doing fine until Ken Thompson lost his mind and the board went a long with him on the Golden West Purchase. If those loans were off the books or as Robert Steel said about two weeks ago, he had a team working with homeowners on those loans and with time most of them could be worked out without a loss, Wachovia could once again become a strong, viable bank. At this point as a stockholder I do not see why we need WF. Our bank is worth much more than 7.00 a share and if they would do away with the mark to market it would allow the assets to be revalued and raise the bank's liquidity. There are many things that could be done if Mr. Steel only had a little time. Once again analyst stating they were ready to downgrade WB caused the beginning problem last week end. This is a shame when analyst and media can put out info that eventually causes the demise of a lot of good institutions which given time could have possibly worked through their problems.

2008 Oct 05 09:37 AM

[dixie:]

WRONG. The FDIC is NOT concerned with, "public or taxpayer interests."
Otherwise, it would not have gifted Washington Mutual to JPM Chase or keep on forcing Wachovia to "marry" Citibank when the most sensible "wedding" is with Wells Fargo.

What is the FDIC's unspoken agenda?

2008 Oct 05 09:39 AM

[Ishortyou:]

Now that the 'bail out' plan came through, Wachovia needs fast to take advantage of it, it needs to sell its toxic loan portafolio from its banking subsidiaries around 122 billion if not more to the government close to even cost prices and take serious advantage of the tax break plan and remediate their banking book of business. They also need to contact their customers that did the run on the bank like chickens without head to bring their deposits back and reassure them that they are ok and there is not reason to panic because of the talking heads of FOX news and rest of media and the incompetence of the FDIC. This strategy will demonstrate to the public that the current 'bail out' plan is working and that Wachovia is the first product of it.

2008 Oct 05 09:44 AM

[more inform...:]

Some points to think about: 1. Could Citi be the one in dire straits and the FDIC be looking out for their best interest instead of the best interests of the consumers and the taxpayers in the whole scheme of things? 2. Wells didn't sign an agreement not to pursue Wachovia. 3. One could argue that the language in the exclusivitiy agreement centered around barring Wachovia from entering into NEGOTIATIONS with anyone else-- didn't see any negotiations taking place... appears that Wells simply came knocking on the door with a definitive agreement in hand- no negotiations necessary. 4. Now that the "bail out" plan has been signed into law, Citi doesn't appear to be much better off because of it- this gives the appearance that Citi NEEDS Wachovia more than Wachovia ever needed Citi.

So I have to wonder when Citi's true financials will leak out, their stock drops to below $1 per share, and the "post bail out" version of Wachovia swoops in to "rescue" them.

I think the past week alone is proof enough that anything can happen, don't you?

2008 Oct 05 10:23 AM

[po'd in Plano:]

FDIC is talking out both sides of their mouth here. Citigroup was getting a deal out of the Jamie Dimon playbook. Obviously Wells wasn't stopped from continuing to look over Wachovia's books. FDIC has got some 'splaining to do

Anyone really think Citigroup is in a position of strength? The company is a mess...Vikram P. needs time to get THEIR act together first. Unless, the FDIC just wants to hand "C" $400 billion in deposits at a low premium. It's smelly

2008 Oct 05 11:41 AM

[starpvb:]

CITI SUES TO PUT TAXPAYERS ON THE HOOK FOR UP TO 42BIL IN LOSSES. MAJOR SHAREHOLDERS OF WACHOVIA SUPPORT THE WELLS FARGO OFFER TO PURCHASE WACHOVIA CORP. SEE STATEMENT OF MAJOR SHAREHOLDERS AT: marketwatch.com
LARGE BLOCK OF SMALLER SHAREHOLDER SUPPORT THE WELLS FARGO DEAL OVER CITIGROUP OFFER, GO TO wachoviavoteno.com
FDIC SHOULD USE ANY LEGAL MEANS TO SUPPORT THE WELLS FARGO PURCHASE OF WACHOVIA IF IT IS SUPERIOR TO THE CITIGROUP DEAL AND DOES NOT PUT TAXPAYERS AT RISK. CITIGROUP SHOULD CONSIDER ITS OWN REPUTATIONAL RISK IN PURSUING THEIR LAWSUIT AND POTENTIAL FOR LOSING CUSTOMERS AND DEPOSITS. CITIGROUP SHOULD MAKE A SUPERIOR OFFER TO PURCHASE ALL OF WACHOVIA WITHOUT TAXPAYER ASSISTANCE, OTHERWISE THEY SHOULD NOT EXPECT SHAREHOLDERS TO APPROVE THEIR OFFER WHICH IS SUBJECT TO SHAREHOLDER APPROVAL.

2008 Oct 05 04:24 PM

[dixie:]

It is obvious that the FDIC is attempting to shore up the balance sheets of the giant subprime specialty banks even if it means robbing from Peter (Wachovia and Washington Mutual) to pay Paul (JPM Chase and Citibank).

Appears $700 billion supplied by the taxpayers is not enough.

2008 Oct 05 11:22 PM

[StarOne:]

Now Citigroup want to sue Wachovia and Wells Fargo for $60b. The three banks should just turn around and sue the FDIC for $77.2b -> ( $2.2+$15+$60 )

2008 Oct 06 11:19 PM

[ywtnow:]

how are they going to price wachovia with a split deal and no value on toxics? who gets mid atlantic and who gets toxics

2008 Oct 09 08:57 AM

[ward:]

My mortgage is currently through Wachovia. My question is if Wells Fargo merged with Wachovia why can't they come up with a better plan to reduce the interest that is taken off the top of the monthly mortgage payment that is equivalent to the reduced value of the home. Also what should be the percentage that the bank should reduce the interest that they are taking?

2008 Nov 24 09:22 PM