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In a statement, Citi (NYSE:C), which announced Sept. 29 that it was acquiring Wachovia?s five depository institutions, said Wachovia?s transaction with Wells Fargo ?is in clear breach of an exclusivity agreement between Citi and Wachovia,? and that Wells Fargo's conduct constitutes tortious interference.
The exclusivity agreement provides that Wachovia ?will not enter into any transaction with any party other than Citi, and will not participate in any discussions or negotiations with any third party.?
New York-based Citi said it was negotiating in good faith and had nearly completed the definitive agreements required to complete its end of the deal with Wachovia (NYSE: WB).
Also, ?the value of the Citi agreement to Wachovia shareholders was substantially in excess of Wachovia's closing price on Thursday, Oct. 2. Citi has also been providing liquidity support to Wachovia Bank since [the Sept. 29] announcement.?
Citi said it has substantial legal rights and has ?demanded that Wachovia and Wells Fargo (NYSE: WFC | Quote | Chart | News | PowerRating) terminate and not proceed with any proposed transaction.?
The Wells Fargo offer, already approved unanimously by the boards of both companies, is a stock-for-stock transaction that brings together two of the largest bank-owned insurance brokers. Unlike the Citi offer, this transaction is not being facilitated by the Federal Deposit Insurance Corp.
Under the terms of the agreement, Wells Fargo will offer Wachovia shareholders 0.1991 shares of Wells Fargo common stock for each share of Wachovia, or roughly $7 for each of Wachovia's 2.2 billion common shares. Wells intends to record Wachovia's credit-impaired assets at fair value and expects to record $10 billion of merger and integration charges (BestWire, Oct. 3, 2008).
Previously, there was an agreement for Citi to pay $2.16 billion in stock and assume roughly $53 billion of Wachovia's senior and subordinated debt in exchange for Wachovia's banking operations.
The deal was structured in a way that would have granted the FDIC $12 billion in preferred stock and warrants.
In a statement, Wells Fargo Chairman Dick Kovacevich, said the new agreement represents a superior value compared to [Citi?s offer] ?to acquire only the banking operations of the company and because Wachovia shareholders will have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world's great financial services companies.?
Wells Fargo Insurance Services, headquartered in Chicago, is fourth in Best's Review's Top Global Insurance Brokers Ranking, with $1.5 billion in 2007 brokerage revenues. North Carolina-based Wachovia Insurance Services Inc. ranked 12th, with $422.4 million. Wells was the highest-ranking bank-based broker on the list, while Wachovia was third-highest.
(By David Dankwa, senior associate editor, BestWeek: David.Dankwa@ambest.com)
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