Citigroup Defends Wachovia Takeover After Surprise Wells Fargo Bid

Wells Fargo trumped an earlier bid from Citigroup in a surprise move to take over Wachovia on Friday.

Citigroup had earlier won a government-sponsored auction to buy assets from Wachovia and said it has "substantial" legal rights to the original deal.

The bid from Wells Fargo is an all-stock $15.1 billion deal that is a complete takeover of Wachovia's businesses. The earlier Citi agreement acquired all of Wachovia's commercial banking operations for $2.16 billion but left it as a public company holding its brokerage, AG Edwards and Evergreen.

Shares of Citigroup initially fell 12% on the deal but recovered on the threat of legal action. Wells Fargo initially gained 8.1%, however, that has been scaled back to 6%. The deal values Wachovia at $7 per share -- a 76% premium -- but it is trading at $6.68.

"Citi has substantial legal rights regarding Wachovia and this transaction ¥ `Wachovia's agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia,'" Citigroup officials said in a statement.

The unexpected bid from Wells Fargo comes after the close of an auction process that was supported by the U.S. Federal Deposit Insurance Corporation.

"Since the close of our bidding process, Wells has apparently re-assessed its position and come forth with this new offer that does not require FDIC assistance," said FDIC Chairman Sheila Bair in a statement.

"The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest," Bair said.

By Adam Button and edited by Sarah Sussman
©CEP News Ltd. 2008