Wells Fargo Wins Battle for Wachovia; Citi to Seek Damages

Wells Fargo & Co. has won the bidding for Wachovia Corp., beating out Citicorp.

Citicorp, while stepping aside, said it plans to pursue damages for interference with the deal it had worked out with Wachovia and federal officials before Wells Fargo entered the picture.

Well Fargo said that it and Citigroup, Inc. have terminated discussions. Wells Fargo reaffirmed that it is proceeding with its merger with Wachovia Corp. as a whole company transaction with all of Wachovia’s banking and other operations including insurance, requiring no financial assistance from the Federal Deposit Insurance Corp. (FDIC) or any other government agency.

The FDIC welcomed Citigroup’s decision. “While some outstanding issues remain, this announcement brings much needed certainty to the process,” FDIC Chairman Sheila Bair said in a statement.

Citi said that following several days of discussions “dramatic differences” in the parties’ transactions and their views of the risks involved “made it impossible to reach a mutually acceptable agreement.”

Wells Fargo has submitted its application to the Federal Reserve Board seeking expedited approval of the merger and the share exchange agreement previously entered into between Wachovia and Wells Fargo.

Under the share exchange agreement, Wachovia is issuing Wells Fargo preferred stock that votes as a single class with Wachovia’s common stock representing 39.9 percent of Wachovia’s voting power. The acquisition of the non-banking related operations of Wachovia and the share exchange agreement have received early termination from the Federal Trade Commission (FTC), under the Hart-Scott-Rodino Act.

Wells Fargo will acquire all outstanding shares of common stock of Wachovia in a stock-for-stock transaction. Wells Fargo will acquire all of Wachovia Corp. and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits.

Wells Fargo Chairman Dick Kovacevich said Wells Fargo is pleased that Citigroup announced that it is no longer seeking that the Wells Fargo-Wachovia merger be enjoined.

“We are delighted to stride ahead with Wells Fargo in creating a coast-to-coast financial institution — one of the strongest financial firms in the world,” said Wachovia Corp. President and CEO Robert K. Steel.

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 stores, 12,227 ATMs and 280,000 team members. The merger will create a coast-to-coast community banking presence with community banks in 39 states and the District of Columbia.

Wells fargo also gets Wachovia Insurance Services, Inc., an insurance broker with annual revenues of approximately $400 million and annual premium placements exceeding $4 billion. Wachovia Insurance Services and its affiliates employ approximately 1,300 insurance professionals in 34 offices throughout 15 states and the District of Columbia.

Citi’s transaction, which it said it remains willing to complete, protected Wachovia’s holding company debt and its subsidiary banks, while limiting the risk to Citigroup and generating value for its shareholders. The transaction also preserved substantial value for Wachovia’s shareholders and other holding company stakeholders without exposing Citigroup to Wachovia holding company liabilities it declined to assume. Finally, Citigroup agreed to pay $12 billion to the FDIC, and to incur up to $42 billion of losses, in exchange for the contingent loss protection the FDIC agreed to provide.

“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,” Citi said in its statement.

Citi said it believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisors and others for breach of contract and for tortious interference with contract. Citigroup plans to pursue these damage claims vigorously on behalf of its shareholders. However, Citigroup has decided not to ask that the Wells Fargo-Wachovia merger be enjoined.