Wells Fargo to Acquire Wachovia Instead of Citigroup, But?

Early Friday, the deal between Citigroup, Wachovia Corporation and the FDIC apparently failed, allowing California-based Wells Fargo to enter into an agreement buy the bank. But Citigroup late Friday morning threatened legal action over the deal.

Wells Fargo will acquire Wachovia, its businesses and obligations, including preferred equity, indebtedness and banking deposits. Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock, valued at $7 per Wachovia common share, which prices the entire transaction at $15.1 billion.

Unlike in the Citigroup deal ("Citigroup to Buy Wachovia Banking Operations: FDIC," Sept. 29), Wells Fargo will not be entering into the agreement with aid from the FDIC.

The merger would make the new Wells Fargo-Wachovia one of the largest depository institutions in the United States, with a combined $787 billion in deposits and 10,700 branches in 39 states.

According to an analyst, risks are involved, even though the merger seems to meld perfectly together. Dimitri Michaud, Consumer Finance Analyst with Kaulkin Ginsberg, said, “One big hassle that Wells Fargo is going to have to deal with is Golden West Mortgage Company. They are going to see a problem with Golden West’s assets, but for the mid and long term this is a huge benefit for Wells Fargo.”

Michaud also noted that the previous agreement between Wachovia, Citigroup and the FDIC would have benefited Citigroup, because it would have allowed them to add to Wachovia’s extensive branch network.

Citigroup said late Friday morning that it would fight the merger between Wachovia and Wells Fargo. Citi said that it had exclusive rights under its agreement with Wachovia and claimed that Wachovia was not permitted to talk to anyone else. Citigroup also revealed that it had been supplying liquidity support to Wachovia this week under its agreement.

Citigroup said that it was totally blindsided by the Wells Fargo news and pointed to the fact that it placed a full-page ad touting its deal with Wachovia in newspapers across the country on Friday, including USA Today.