@VIC: Bill Ackman on Wachovia

Todd Sullivan attended this week's Value Investing Congress on behalf of Seeking Alpha.

Bill Ackman spoke at the Value Investing Congress on Wachovia (WB), Wells Fargo (WFC) and Citi (C).

• 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

Comments

[kowalski:]

So you are long WFC now?!

What happened to your former C and WB positions?!

Did you play with their values, or did they play with you?!

2008 Oct 07 08:47 AM

[Ishortyou:]

lol...Well I guess is time to put themselves to work instead of whining of who gets who and start remdiating the banking book of business of Wachovia by selling those toxic loans through the government program deal and getting hudge advantage of the tax break they provide, they also need to call their customers to bring their deposits back instead of running away like chickens without heads,Wachovia needs to do this the sooner the better while things sort themselves out.

2008 Oct 07 08:51 AM

[borisb:]

nice report. we will see if there is anything left in the price spike. dis: long wb.

2008 Oct 07 09:39 AM

[Milt:]

Broker just recommended Wachovia as a strong buy!!!

I said you got to be kidding me!

He said that Citi is preparing a counter offer to be delivered later this week for "ALL" of Wachovia at $17 + a share.

Said his info came from a friend at Citi that is in a position to know and this friend said the reason was basically that without Wachovia or another equal to acquisition Citi was going down the toilet!

What do you think?

PS: Also said that the reason Fed put a hold on was to give both Citi and Wells Fargo time to develop offers!

2008 Oct 07 11:02 AM

[helplessobs...:]

A couple of observations:
1. C is sick, sick and barely breathing, scaring the heck out of the everyone.
2. Ackman made 1600 on his SATS and uses this demonstrated mental faculty to drill down into the minutiae of investments. He saw the immediate value to WB of the IRS new decision on tax loss carry forwards as a huge asset for WFC, who has profits to shelter. Anyone who has losses these carry forwards are worthless.

2008 Oct 07 11:19 AM

[Milt:]

Just talked to a friend on the West coast that works for Citi and he basically confirmed what my broker said except in more explecit terms.

" If we don't get Wachovia then there won't be a Christmas at Citi corp"

Then he added that it didn't look good because of the language of article 11 in the bail out bill as stated above.

Think I'll take a chance on some Wachovia and hold for awhile!

Milt

2008 Oct 07 11:41 AM

[Ishortyou:]

lol...hope Wachovia gets to arrange its book of business, those toxic loans have to come out for sale no matter what, once they are out Wachovia will have a sound book banking business, I read that Frannie and Freddie just bought a hudge loan book from a bank I hope they do the same for Wachovia, the sooner the better.

2008 Oct 07 12:45 PM

[Law Prof:]

The provision in the bailout bill predated the FDIC push of Wachovia to the bargaining table, so stop winking and nodding at Steel's Treasury background. Wachovia was not required to file an 8-K because there was no agreement with Citi, only a non-binding agreement-in-principle and a non-material exclusivity agreement. The bailout bill doesn't apply by its terms to the target (Wachovia), just to the topping bidder (Wells). On the other hand, Wachovia's fiduciary duties required them to take the Wells offer, given the FDIC-imposed deadline.

2008 Oct 07 04:52 PM

[Milt:]

I think were all forgetting one important item here!

It's the stock holders and in my humble opinion theres no way in h*ll they are going to vote in favor of Citi at 2B!!!

2008 Oct 07 05:14 PM

[Vikram Saxena:]

Milt:
You seem to have missed the WHOLE point of Ackman's presentation and this article. The remaining assets after what Citi takes are worth MORE than Wells offer; according to Ackman between $7-$19/share.

2008 Oct 07 07:23 PM

[I should know:]

I'm long on WF and I'm not sure if I want their offer to go through or not. The Feds aren't going to cover or buy 100% of Wachovia's toxic loans and they probably have the most in the country just behind WaMu at #1 and Countrywide (B of A) at #2. If the incompetent dopes at Citi take Wachovia at a price higher than the Wells offer, Wells will have the opportunity to come-in and take the whole shebang 18 to 24 months from now. Buying Wachovia will not make the Citi higher-ups any smarter; they couldn’t run a 7-11 effectively.

2008 Oct 08 08:36 AM

[Stone Fox C...:]

Brillian move by Ackman. Wish I'd had the capital to do the same.

2008 Oct 08 12:40 PM

[1 of 4:]

Ackman's analysis that Wachovia's remaining businesses are worth more than either the Citi or WFC offer is right. I have one little question about his valuation: how do you get such a disparity in the low and high values for cash and equivalents? Are the equivalents junky CDOs?

2008 Oct 08 01:41 PM