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 (NYSE:MS) and Goldman Sachs (NYSE: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 (NYSE: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