Wachovia and Wells Fargo & Co. that was announced earlier in the day. New York-based Citi says the proposal, which would supersede its own deal to buy Wachovia through an arrangement with the FDIC, constitutes a breach of agreement.
"Citi has substantial legal rights regarding Wachovia and this transaction," the company stated shortly after the Wachovia-Wells Fargo announcement Friday morning. Citi, which began promoting its own merger with Wachovia earlier this week, added that it has already provided liquidity to Wachovia that prevents it from talking to anyone else.
Saturday night, Citi exercised those rights by obtaining an order from a New York State Supreme Court judge blocking the deal between Wachovia and San Francisco-based Wells Fargo. Then a federal judge blocked the state order Sunday night, setting a Tuesday hearing on the matter in a lower Manhattan courtroom.
Wachovia issued the following statement Sunday: "Wachovia continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid. The agreement is in the best interests of shareholders, employees, creditors and retirees as well as the American taxpayers and it imposes no risk to the FDIC fund. Under that agreement, Citigroup is always free to make a superior offer to Wachovia."
Citi and Wells Fargo were lined up Sept. 26 to make an offer to buy Wachovia, which has been saddled with billions of dollars in option mortgage debt related to the faltering housing market. Wells Fargo's approximately $15-billion bid, accepted by Wachovia's board Thursday night, amounts to seven times the amount offered by Citi in a deal announced last Monday that includes a $42-billion bailout provision by the FDIC.
In a conference call later Friday, Wells Fargo Chairman Dick Kovacevich says his bank's deal to buy Wachovia will take some time to complete, adding that its impact on shareholders needs to be considered. "All of these things have to be understood and we have to be comfortable before we will ever make a decision," he says.
From a real estate standpoint, a deal between Wachovia and Wells Fargo would have less overlap because both banks operate primarily on opposite coasts. Citi, on the other hand, would run into some redundancy issues along the East Coast, particularly in Florida where both banks share a large presence. Wachovia has nearly 3,400 branches and leases space in numerous office buildings in larger cities.
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