Latest on Wachovia, Citi & Wells Fargo

Citi, Jilted in Wachovia Deal, Ponders Lawsuit

Excerpt:

Then, late Thursday, Wells Fargo swooped in, taking Citigroup by surprise and prompting its legal team to contemplate a lawsuit for violations of an agreement to bar Wachovia from talking to other parties until Monday. Wachovia feared that the sweeter deal with Wells Fargo could fall through if the parties waited until Monday. The agreement did not specify damages in the event of a breach. But it stated that either party could go to court to force the other to comply with the contract’s terms.

In an angrily worded press release issued Friday, Citigroup said “a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citigroup and Wachovia. In addition, Wells Fargo’s conduct constitutes tortious interference,” a legal term meaning intentional interference with a contract.

Of course, it is not that simple. Several lawyers said that courts did not always tolerate companies’ efforts to tie their own hands, especially when doing so might hurt investors. In this case, Wachovia’s lawyers may well argue that it had to entertain the possibility of a better deal when one appeared and that to ignore a better offer would violate its fiduciary duties, or its legal obligations to protect the interests of its shareholders.

“Bidders jump deals all the time,” said Jill Fisch, a law professor at the University of Pennsylvania. “A new buyer comes in, jumps a deal, makes a better offer.”

In fact, some lawyers had already prepared to file a lawsuit on behalf of Wachovia shareholders to block the Citigroup deal, probably planning to argue that its terms were unfavorable to investors, said Stuart Grant, a securities lawyer at Grant & Eisenhofer in Wilmington, Del. “Those were literally in the works,” Mr. Grant said of the shareholder lawsuits.

The obligations of directors are determined by state law, and Wachovia is incorporated in North Carolina. It is not clear that courts in that state have decided how contracts might interact with fiduciary duties in a case like this, said James D. Cox, a professor of corporate and securities law at Duke University.

“I think the conclusion we would reach in North Carolina is, we do not want to see directors able to shirk their fiduciary responsibilities, at least in the absence of evidence that the only way you could’ve gotten a Citicorp deal was not to shop any further,” Mr. Cox said. He said such an interpretation would follow courts in Delaware.

Ackman's Pershing Said to Have Bought 9% of Wachovia

Excerpt:

William Ackman's Pershing Square Capital Management LP bought a 9 percent stake in Wachovia Corp., now valued at $1.2 billion, according to a person with direct knowledge of the purchase.

The shares were acquired following Citigroup Inc.'s Sept. 29 agreement to buy the bank and before Wells Fargo & Co. announced a rival offer today, said the person, who declined to be identified because the purchases haven't been publicly disclosed.

The purchase inserts Ackman, 42, into the latest skirmish in the credit crisis, a pitched battle over Wachovia's deposits and branches after the Charlotte, North Carolina-based company went to the brink of collapse.

``He's gotten lots of publicity for being short in the financial sector,'' said Whitney Tilson, managing director of T2 Partners LLC, a New York-based hedge fund, and a friend of Ackman's. ``It's treacherous out there right now but this illustrates that if you're nimble and courageous and have done your homework there are unprecedented opportunities right now.''

Comment: I've been a bit consumed with this news today but I find it absolutely fascinating. As a Wells Fargo employee, I am very proud to work for this organization. I think that merger activity (I've been through this before with the Norwest - Wells Fargo merger) will be very interesting. As a Wells Fargo investor, I have complete faith in the leadership team. They are good solid conservative bankers. As a Wells Fargo customer it will be great to be able to bank coast to coast with Wells Fargo. Stepping back, the Wells Fargo acquisition of Wachovia is a better solution for Wachovia's investors, employees and customers. While I'm not a lawyer, I think that the Citicorp legal challenge will soon evaporate.