Wachovia, Wells Fargo seal deal

Media General News Service and Wire Reports
Published: October 11, 2008

Shares of Wachovia Corp. jumped 43 percent yesterday after its acquisition by Wells Fargo & Co. was sealed, creating the largest U.S. bank by branches. Wells Fargo rose 3.9 percent.

“I believe this is a phenomenally good thing for the Richmond area,“ said Michael Jones, chairman and chief investment officer of Riverfront Investment Group in Richmond.

Wachovia employs about 4,100 people in the Richmond area and holds about 25 percent of the retail banking market.

“With Wells Fargo coming in, there’s so much more stability and certainty surrounding all of their operations,“ he said. “They now have the ability, without hesitation, to lend.“

Wells Fargo and Wachovia said late Thursday that they will stick with the terms of the all-stock deal they struck Oct. 3, fending off a challenge from Citigroup Inc., which had made its own offer four days earlier.

The $12.2 billion deal marks Wells Fargo Chairman Richard Kovacevich’s biggest takeover since he led Minneapolis-based Norwest Corp.‘s purchase of Wells Fargo 10 years ago. Like JPMorgan Chase & Co., which last month acquired Washington Mutual Inc., he took advantage of the worst financial crisis since the Great Depression to extend his geographic franchise.

The Wells Fargo bid values Charlotte, N.C.-based Wachovia at $5.64 a share, 10 percent more than yesterday’s closing price. Wells Fargo rose $1.06 to $28.31. Wachovia advanced $1.55 to $5.15. Citigroup climbed $1.18, or 9.1 percent, to $14.11.

Citigroup, based in New York, dropped the legal battle it waged to prevent the merger. The bank, led by CEO Vikram Pandit, 51, still plans to sue Wells Fargo for $60 billion in damages, saying news of the competing bid caused its own share price to tumble.

A torrent of back-and-forth court filings over the deal generated so much publicity that the Federal Reserve, concerned about its effect on U.S. financial markets, insisted on a cease-fire to allow the two suitors to settle their differences. The pause lasted until yesterday, when Citigroup said it had ended talks with Wells Fargo.

Two lawsuits are pending among the three banks. In New York State Supreme Court in Manhattan, Citigroup is seeking damages from Wachovia and Wells Fargo. In U.S. District Court across the street, Wachovia had been seeking a federal court order that its deal with Wells Fargo was valid.

Tulane University law professor Elizabeth Nowicki said Wells Fargo will be on the hook for any damages claims against Wachovia.

“When you acquire a corporation in a full-out merger, you acquire both the assets and liabilities unless there’s some agreement to the contrary,“ Nowicki said. “That’s why I imagine Wells Fargo might kick in something to get Citigroup to go away.“

Wells Fargo would gain control of a bank with $448 billion of deposits in 21 states. It would have 6,675 branches, compared with Bank of America’s 6,139. More than half of Wachovia’s branches are on the East Coast, while Wells Fargo’s reach from California to Texas and Minnesota.

“Frankly, I’ve always thought a Wells Fargo and Wachovia combination would be an outstanding organization,“ said William F. Shumadine, former president of Central Fidelity Bank, one of the two big Richmond banks merged into Wachovia.

The Wells Fargo deal was originally valued at $7 a share, or $15.1 billion. It declined this week as the bank’s share price fell. Each Wachovia share will be exchanged for 0.1991 Wells Fargo share, based on the terms announced Oct. 3.

The U.S. Federal Trade Commission expedited approval of the takeover and antitrust clearance was disclosed in a list of terminated merger reviews published yesterday.

Separately, Wachovia gained an exemption from the New York Stock Exchange from a requirement to seek shareholder approval for the sale to Wells Fargo, according to a statement.