U.S. antitrust regulators clears Wells Fargo-Wachovia deal

(RTTNews) - Wells Fargo & Co. (WFC | Quote | Chart | News | PowerRating) moved ahead in its efforts to buy beleaguered bank Wachovia Corp. (WB | Quote | Chart | News | PowerRating) after U.S. antitrust regulators on Friday cleared the deal and Wachovia got a waiver from a requirement to seek shareholder approval before issuing preferred shares.

The U.S. Federal Trade Commission included the Wells Fargo-Wachovia deal on a list of deals released today that received an "early termination" of their antitrust reviews.

Charlotte, North Carolina-based Wachovia said Friday it would not seek shareholder approval before issuing preferred stock to Wells Fargo, as the delay caused by doing so would seriously jeopardize the financial viability of the company.

As part of their merger agreement and share exchange agreement reached on October 3, Wachovia plans to issue Wells Fargo preferred stock representing 39.9% voting power. The transaction would have normally required shareholder approval according to the policy of the New York Stock Exchange.

However, the NYSE accepted Wachovia's application for an exception to the practice.

The Wells Fargo-Wachovia deal overcame a major hurdle yesterday when Citigroup said it has terminated its talks with Wells Fargo over their fight to buy Wachovia, but has decided not to ask the Wells Fargo-Wachovia merger to be enjoined.

San Francisco-based Wells Fargo on late Thursday reaffirmed that it was proceeding with its proposed acquisition of the whole of Wachovia and said the deal is on schedule for completion by the fourth quarter of 2008.

The acquisition still requires the approval of Wachovia shareholders.

While Citigroup is not challenging the Wells Fargo-Wachovia merger, the company said it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisers and others for breach of contract and for tortious interference with contract. Citigroup said it plans to pursue the damage claims vigorously.

"Without our willingness to engage in this transaction, hundreds of billions of dollars of value would have been seriously threatened. We stood by while others walked away. Now, our shareholders have been unjustly and illegally deprived of the opportunity the transaction created," Citigroup said in a statement Thursday.

Citigroup CEO Vikram Pandit said, "We did not seek the Wachovia transaction; Wachovia brought it to us."

Citigroup has already filed a complaint with the Supreme Court of the State of New York against Wachovia, Wells Fargo and the directors of both companies. In its complaint, Citigroup is seeking more than $20 billion in compensatory damages and more than $40 billion in punitive damages from San Francisco, California-based Wells Fargo for tortious interference with Citigroup's contract with Wachovia. Citigroup is also seeking relief from Charlotte, North Carolina-based Wachovia for its bad faith breach of that contract.

On September 29, New York-based Citigroup agreed in principle to acquire the banking operations of Charlotte, North Carolina-based Wachovia for $2.1 billion in a deal brokered by the Federal Deposit Insurance Corp.

Under Citigroup's deal with Wachovia, Citigroup had agreed to assume $53 billion worth of debt and absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio. The FDIC agreed to cover any remaining losses in exchange for $12 billion in Citigroup preferred stock and warrants.

However, four days later on October 3, Wells Fargo announced that it has signed a definitive agreement to buy Wachovia for about $15.1 billion in a stock-for-stock transaction. Under the terms of that deal, Wells Fargo will acquire all of Wachovia and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits. The deal requires no financial assistance from the Federal Deposit Insurance Corp. or any other government agency.

Citigroup swung into action immediately and said in a statement on the same day that Wachovia's agreement to a deal with Wells Fargo is in clear breach of an exclusivity agreement between Citigroup and Wachovia. Citigroup demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction, any conduct in furtherance thereof, or any other act in violation of the exclusivity agreement.

Then, the legal battles began over the weekend. A New York state judge on Saturday granted emergency injunctive relief to Citigroup extending its exclusivity agreement with Wachovia until further order of the court. However, a New York State appeals court vacated the court's ruling on Sunday.

On Monday, October 6, Citigroup filed the suit with the Supreme Court of the State of New York.

Citigroup alleged that had it not reached a deal with Wachovia on September 29, Wachovia would have failed the following day and the debt issued by its holding company would have collapsed, with potentially devastating implications for the stability and security of the financial markets.

Citigroup has also alleged that though Well Fargo was once a potential suitor for Wachovia in connection with a process for the rescue of Wachovia facilitated by regulators, it had determined not to participate in the process of rescuing Wachovia by September 28.

Wells Fargo has been weathering the credit crises much better than most of its competitors, partly because it had less exposure to the subprime mortgages. The company has remained profitable, though its profits have declined. For the first six months of 2008, the company's net income declined to $3.752 billion or $1.13 per share from $4.523 billion or $1.33 per share in the year-ago period.

Like JPMorgan Chase & Co. (JPM | Quote | Chart | News | PowerRating), which last month acquired all deposits and assets of Washington Mutual Inc., Wells Fargo has taken advantage of the ongoing financial crisis to trap Wachovia in order to expand its geographical presence.

If the Wells Fargo-Wachovia merger is through, the combined company will have $1.42 trillion in assets, $787 billion in deposits, 48 million customers, $258 billion assets under management in mutual funds, 10,761 branches and 12,227 ATMs.

Wells Fargo shares closed Friday's regular trading session at $27.25, up $1.06 or 3.89% but lost 16 cents in after hours trading.

Wachovia shares, which closed the day's session at $5.15, up $1.55 or 43.06% but lost 12 cents or 2.33% in after hours trading.

For comments and feedback: contact editorial@rttnews.com Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index