Todd Sullivan attended this week's Value Investing Congress on behalf of Seeking Alpha.
- Outcome determined based on which transaction creates most value for shareholders who will decide by majority vote;
- Wachovia Board of Directors will pursue highest-value/highest-certainty transaction;
- Citi transaction value uncertainty is largely due to limited disclosure about Pro Forma Wachovia Corp. This is easily addressed through additional disclosure;
- Wachovia never filed an 8-K detailing the terms of the Citi transaction and providing a pro forma income statement and balance sheet as well as a detailed schedule of assets of Pro Forma Wachovia Corp. The SEC requires companies to file an 8-K detailing material agreements within four business days;
- In order to increase transaction certainty, Citi may propose to acquire all of the Holding Company at a higher per-share price than WFC or team up with another buyer who will acquire Pro Forma Wachovia Corp at a higher price than Wells Fargo;
- Wells Fargo would likely increase its offer or buy Pro Forma Wachovia Corp along with selected branch and bank assets;
- Pro Forma Wachovia Corp will give buyer/merger partner an industry-leading position with a nationwide brokerage network and asset management franchise;
- Pro Forma Wachovia Corp has no debt, $9.8 Billion of non-cumulative perpetual preferred and substantial cash and tax refund assets which allow for a stock buyer to make a highly capital-accretive transaction;
- Pro Forma Wachovia Corp will have additional tax attributes that can shelter future income or gain;
- These attributes make Pro Forma Wachovia Corp particularly attractive to Morgan Stanley (MS) and Goldman Sachs (GS), for they are now deposit-taking institutions that will seek to deleverage and would benefit from the Wachovia Securities broker, financial advisor, and deposit-gathering network;
- With cash, tax attributes, cash-generative operating businesses, and non-cumulative perpetual liabilities, Pro Forma Wachovia Corp is also an ideal investment vehicle (think Berkshire Hathaway (BRK.A)).
But what about the "exclusivity" agreement with Citi? Ackman said the following language from the Bailout Bill destroyed it:
Remember where Wachovia CEO Bob Steel worked before his current job? Treasury.
The hidden gem here is the brokerage business:
So, what does Ackman value the parts and shares at?
Here is Ackman on CNBC talking about the tax issue:
Ackman gave a press conference after I attended and answered questions for over an hour. More on that later.
Disclosure: Long WFC
Source: @VIC: Bill Ackman on Wachovia