The Wachovia - Citi legal drama
Wells Fargo to Buy Wachovia, Trumping Citigroup Agreement
Excerpt:
According to a copy of the Sept. 29 agreement, Wachovia agreed not to "enter into or participate in any discussions or negotiations with … any third party that is seeking to make, or has made, an Acquisition Proposal." (See the document.) Wachovia officials don't dispute the contents of the agreement signed with Citigroup. But a person familiar with the situation said that Wachovia directors were obliged under their fiduciary duty to shareholders to accept Wells Fargo's higher offer, even though that leaves Wachovia legally vulnerable.
Comment: Does the board's fiduciary duty to shareholders trump this? Should be interesting.
Updated: WSJ: In Wachovia, Citi Deal, Did S&C Overlook Some ‘Small Stuff’?
Thing is, exclusivity agreements just might be considered so much “small stuff” by a Delaware court. The M&A lawyer tells us that courts are generally reluctant to negate mergers that promise big gains to stockholders. This one does: Wachovia shareholders would get a 79% premium.
Wells Fargo was advised by a squad from Wachtell, Lipton, Rosen & Katz. Skadden, Arps, Slate, Meagher & Flom’s Eric Friedman, Greg Fernicola, Bill Sweet and Stuart Levi repped Citi.
Scroll down for viewer comments about the article. This one was interesting:
Here’s a wrinkle in the exclusivity — parse Wachovias public statement very carefully. They said that WF prsented an offer approved by WF’s board. And then Wachovia announced that their own board had approved the offer. I thought that was a weird thing to say. Note it did not say that they had entered into any agreement or LOI or term sheet or “agreement in principle”.
This is interesting because the exclusivity agreement (available http://online.wsj.com/public/resources/documents/citiwachoviaagreement2008.pdf) prohibits Wachovia from (prior to 10/6) (i) soliciting offers, (ii) furnishing information to other suitors, or (iii) entering into any agreement for an acquisition. Wachovia may be setting up an argument that nothing prohibits them from securing board approval of an offer that they did not solicit during the term of the exclusivity agreement.
Is this Warren Buffet's favorite blog? How in the world did that anonymous guy get it right when he was, now looking in hindsight, basically screaming at us to buy Wachovia yesterday? I'm beginning to wonder if the real name of "Anonymous" isn't actually Warren Buffet!
ReplyDeleteI think the WF- Wachovia merger is a bad idea, especially if that document is legally binding!
ReplyDeleteWhy would WF want to risk its place in the market by being loaded down with Wachovia's bad assets...
The only positive is that it will give them some market share in the SE US
RE: I think the WF- Wachovia merger is a bad idea, especially if that document is legally binding!
ReplyDeleteAnswer: From what I've read, it is probably not binding because the board members have a fiduciary responsibility to do what is best for the stockholders. But I'm sure it will be tested in court.
RE: Why would WF want to risk its place in the market by being loaded down with Wachovia's bad assets...
Answer: Check out the investor relations presentation available at both the WF site (PDF) and the Wachovia site (PPT). They are identical but just a different file format. Wells says that it as an internal rate of return of 15%. Every business has bad assets. I personally have bad assets and have lost money here and there in various investments. The way Wells will make $$$ is by bringing efficiencies to the back office. So let's say that Wachovia has 6,000 people in IT ... and that Wells has 6,000. The combined company (for illustrative purposes) can perhaps have 8,000 in IT. The Norwest acquisition of Wells Fargo cost millions in integration but returned nicely for investors. Time will tell.