Citi backs out

Citi ends negotiations, won’t stop Wells-Wachovia merger

Excerpts:

Citigroup said this afternoon that it had stopped negotiating with Wells Fargo & Co. over a possible splitting up of Wachovia Corp.’s operations, citing “dramatic differences” in possible transaction structures.

In a statement, Citi said the New York bank will continue to pursue legal claims against Wachovia and Wells Fargo but will not seek to stop a Wachovia-Wells merger. All three banks have been under a legal ceasefire until 8 a.m. Friday.

Citi agreed on Sept. 29 to buy most of Wachovia for $1 per share with assistance from the Federal Deposit Insurance Corp. That deal left behind Wachovia’s asset management and brokerage businesses. Wells, however, swooped in four days later with a deal to buy all of the Charlotte bank for $7 per share.

Citi said in a statement: "We are proud to have been part of an historic transaction that was supported by all of the federal banking agencies and the Secretary of the Treasury, after consultation with the President, and that we carefully designed to avoid systemic stress and to advance the interests of our shareholders."

Comment: Just off the wire so not sure how complete this news is. Updated below: Citi wants damages:

Citi Withdraws From Wells Fargo Talks

Excerpts:

Citigroup said in a statement that it is no longer seeking to block the Wells Fargo-Wachovia merger, but it will seek compensatory and punitive damages.

Comment: A Norwest mug is in the mail!

The King Solomon solution

Angry Feds May Force Citi and Wells to Share Wachovia

Excerpt:

Worried about a protracted legal battle further wrecking the credit markets, banking system, and economy, the Feds have stepped into the fight for Wachovia. The solution? Citi and Wells Fargo may have to share it:

Comment: My solution: Let the stockholders decide! The King Solomon solution refers to 1 Kings 3:25-27.

Wachovia - behind the scenes

FDIC says Wachovia deal in the 'public interest' may come today

Excerpts:

... legal filings show dire concerns about the Charlotte bank’s health.

Following the failure of Washington Mutual on Thursday Sept. 25 and the House of Representatives initial rejection of a government bailout, Wachovia’s stock faced significant pressure, Wachovia chief executive Bob Steel said in an affidavit filed over the weekend.

In response to these concerns, the bank began negotiating on Saturday with Citi and Wells Fargo about a possible merger, Steel said. Wells chairman Dick Kovacevich indicated he was interested in buying all of Wachovia, but by 6 p.m. Sunday stepped aside. Steel then received a call from FDIC chairwoman Sheila Bair, who said the situation posed “systemic risk” and directed Steel to talk to Citi.

At a Wachovia board meeting at 6:30 a.m. on Monday Sept. 29, Steel told directors that the bank had two choices: file for bankruptcy or negotiate with Citi and the FDIC, which provided assistance in the transaction. The deal was announced late that morning.

At the time, Wachovia “was on the verge of collapse, burdened by bad loans and caught up in a liquidity crisis that threatened its very survival,” Citi said in the complaint it filed today. “Had Citigroup not stepped up in this way, Wachovia would have failed the following day and the debt issued by its holding company would have collapsed, with potentially devastating implications for the stability and security of the financial markets.”

Negotiations on the final merger agreement with Citi, however, proved “extremely complicated and difficult,” Steel said, adding that Wachovia was under “tremendous” pressure from regulators and Citi to reach an agreement before today. Wachovia suggested a transaction that would buy all of the company, but Citi refused, Steel said.

At 7:15 p.m. on Thursday, Steel said he received an unexpected call from FDIC chairwoman Sheila Bair telling him to be on the lookout for an offer from Wells. He was preparing to board a flight from New York to North Carolina so he told her to call the bank’s general counsel Jane Sherburne. When he landed, he talked with Bair again before receiving a 9 p.m. call from Wells Fargo chairman Dick Kovacevich. A few minutes later, Kovacevich e-mailed Steel a signed merger agreement.

Early Friday morning, Wachovia chief executive Bob Steel said that he and the bank’s advisers told the Wachovia board that it faced being put into FDIC receivership unless it completed a deal with either Citi or Wells Fargo. The board then approved the Wells deal.

Meanwhile ...

Citigroup in 'standstill agreement' on litigation

Wachovia, Citigroup and Wells Fargo said this afternoon that they have reached an agreement to standstill on all litigation activity effective immediately.

The agreement will terminate at noon on Wednesday, unless extended.

"We are pleased to participate with the Federal Reserve Board in a fair-minded, good faith process to achieve a prompt and successful outcome,” Citi said in a statement.

...

New York-based Citi said it remains “very excited” about its plan to buy the bulk of Wachovia, and that the Citi-Wachovia deal would have been finalized last Friday “if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors.”

The $60 billion figure stirred ridicule from the Web site wachoviavote.com, which was organized by shareholders who oppose the Citi deal. Citi's offer last week to buy Wachovia for $2.1 billion essentially valued the Charlotte bank at $1 per share. The $60 billion demand “is a pretty twisted way of saying Wachovia is worth $28 a share…,” the Web site said in a post today.

Comment: Visit the wachoviavote.com site for information from a Wachovia shareholder perspective.

We oppose this transaction [Citigroup transaction] for several reasons.
To begin with, any deal should be structured as an exchange of Wachovia stock for shares of the acquiring entity so that the deal involves not just the bank but the entire Wachovia, which is worth a lot more as an entire company.
The way this deal is structured Wachovia is selling its biggest asset, the bank, for practically nothing. The shareholders of Wachovia get nothing in return, and we are left holding shares of a much, much smaller Wachovia without its biggest asset.
It's hard to imagine that the fourth largest bank in the nation, with $800 billion in assets, $450 billion in deposits, 3300 branches in 21 states, 15 million household and business customers; 15.4 million online product and service enrollments and 5.1 million active online customers is only worth an amount equal to $1.00 per share of Wachovia stock.

Latest Wachovia news

The Mad Legal Dash for Wachovia

Excerpt:

Federal Lawsuit: Wachovia has sued Citi in federal court in the Southern District of New York. Wachovia is claiming that the exclusivity agreement between it and Citi is void because of the same Section 126(c) of the bailout law, and furthermore is invalid because it prevents Wachovia from accepting the $15.1 billion bid by Wells Fargo – 7 times higher than Citi’s own bid.

So, the big issue is what exactly does this Section 126(c) require? The provision states:

(c) UNENFORCEABILITY OF CERTAIN AGREEMENTS.—Section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)) is amended by adding at the end the following new paragraph:

(11) UNENFORCEABILITYOFCERTAINAGREEMENTS.—No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly—

(A) affects, restricts, or limits the ability of any person to offer to acquire or acquire,

(B) prohibits any person from offering to acquire or acquiring, or

(C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of, all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the [FDIC] exercises its authority under section 11 or 13, shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy.

The FDIC action with respect to Wachovia on Monday was an action under section 13, and so under this section’s plain terms this language would seem to invalidate Citi’s exclusivity agreement.

Boies brings legal star power to Wachovia case

Excerpt:

He's been called the Tiger Woods of the courtroom.

He represented the federal government in its attempt to break up Microsoft, Napster in its battle with the recording industry, and Al Gore in his failed bid to force a vote recount in Florida after the 2000 presidential election.

Now, 67-year-old David Boies is representing Wachovia in what is sure to be a blockbuster legal battle between Citigroup and Wells Fargo over which bank will ultimately buy the Charlotte-based company. Boies' firm – Armonk, N.Y.-based Boies, Schiller & Flexner – was active in court hearings this weekend on Wachovia's behalf, and more hearings are expected this week.

In Boies, Wachovia has hired a lawyer able to quickly weed through an array of complicated facts and construct a compelling argument.

“He's quite simply one of the smartest lawyers I've ever known,” longtime friend Walter Dellinger of Chapel Hill, a Duke law professor, said Sunday. The two were classmates at Yale Law School.

Wachovia to be split?

Excerpt:

After a weekend of legal wrangling in New York over Wachovia’s fate, Citigroup and Wells Fargo were negotiating Sunday night, under pressure from regulators, on a compromise that could essentially carve up the Charlotte bank among the two feuding buyers, the Wall Street Journal reported.

Under the leading plan, Citigroup would get Wachovia branches in the Northeast and mid-Atlantic regions and Wells Fargo would get branches in the Southeast and California, as well as Wachovia’s asset management and brokerage businesses, the Journal reported. The Federal Reserve was pushing the discussions, the Journal reported, as it worried about the reaction of jittery investors today.

Comment: I predict this will be resolved by this time next week - probably before.

Fed court trumps state court

Court tilts Wachovia fight toward Wells Fargo

Excerpt:

U.S. District Judge John Koeltl late Sunday blocked an order by New York State Supreme Court Justice Charles Ramos issued late Saturday at the request of Citigroup Inc.

...
It was clear from documents filed in federal court Sunday that Wachovia was in considerable trouble when it agreed to the deal. Wachovia disclosed that it agreed to the deal "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.
...
It was quite possible that litigation among the three banks could go on for some time; any ruling by either judge was likely to be appealed. A protracted court fight raised the possibility that Wachovia, already hurt by billions of dollars in losses from failed mortgages, will further weaken. However, the government, which has closed and then seized failing banks including Washington Mutual Inc., the nation's largest thrift, would likely step in if the bank were in jeopardy.

Comment: I'm sure my readers think I am obsessed with this drama. I'm not, but I am fascinated!

Citigroup: Breakup fee, forced merger, or nothing?

Can Citi stop Wells Fargo's bid for Wachovia?

Excerpt:

Citigroup (NYSE: C) looks like it's trying to get a breakup fee in exchange for giving up on its deal for Wachovia (NYSE: WB). Citi persuaded a New York judge to extend an exclusivity agreement between Citi and Wachovia -- which prohibited Wachovia from talking to other suitors -- through at least October 10th when the parties are scheduled to meet with the judge. Citi can either offer a higher price than its rival, Wells Fargo (NYSE: WFC), or it can negotiate a breakup fee to soothe its hurt feelings.

...

Citi -- whose stock lost 18% of its value on Friday -- is seeking $60 billion in damages from Wells. I would not be surprised if Citi received less than that in a settlement. But I would be rather shocked if Citi -- which did not have a formal merger agreement with Wachovia -- comes back with a bid that offers more to Wachovia shareholders and to the FDIC than the Wells proposal.

Comment: My take is: Citi can't match the Wells Fargo offer. The courts will recognize the fiduciary responsibility of the board and the benefit to stockholders. Citi may get a breakup fee but it won't be much

Citi granted emergency injunctive relief

Judge temporarily blocks Wells Fargo's bid

Excerpt:

Citigroup fired the first shot in what could be a prolonged legal battle, persuading a New York judge to temporarily block Wells Fargo from acquiring Wachovia, Citigroup announced in a news release sent late Saturday night.

Citigroup has accused Wells Fargo of wrecking its plan to acquire Wachovia's banking operations for $2.2 billion, or $1 a share, in a deal arranged by the Federal Deposit Insurance Corp. Four days after that deal was struck, it fell apart when Wachovia agreed to Wells Fargo's offer to pay seven times as much for the entire company.

The underlying battle is over which company will emerge from the current economic crisis in a stronger position among a smaller number of global financial giants. A person briefed on the situation said that Citigroup was seeking a total of $60 billion in damages.

Citigroup contends that the deal with Wells Fargo violates an agreement that prohibited Wachovia from having any sale or merger discussions with anyone other than Citigroup until Oct. 6. The order issued by a judge on Saturday extends the term of that agreement until further court action, according to Citigroup's news release.

“Wachovia believes its agreement with Wells Fargo is proper, valid and in the best interest of shareholders, employees, and the American taxpayers," Wachovia spokeswoman Christy Phillips-Brown told the Observer early Sunday. "Under that agreement, Citigroup is always free to make a superior offer to Wachovia.”

The litigation could be a blockbuster, pitting some of the nation's largest surviving financial institutions against one another and giving work to the most expensive legal talent money can buy. Citigroup is represented by the New York lawyer Gregory Joseph; Wachovia by David Boies of Boies, Schiller & Flexner; and Wells Fargo by Wachtell, Lipton, Rosen & Katz, according to people briefed on the matter.

Comment: Solution: To the highest bidder.

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.

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.

Online wills and legal forms

A Need for a Will? Often, There’s an Online Way

Planning
A Need for a Will? Often, There’s an Online Way
By CHRISTINE LARSON
Published: October 14, 2007
The growing sophistication of software and increasing consumer comfort with online financial management have led to a boom in homegrown estate planning.

Excerpt:

WHEN John Chuang of South Pasadena, Calif., became a father in 2005, he and his wife, Sulynn, knew that they needed a will. But Mr. Chuang, 38, didn’t want to pay hundreds of dollars to a lawyer to draw up the document. So he turned to an online service that helps people fill out their own legal forms.

For about $70, the service, called LegalZoom, gave Mr. Chuang an online questionnaire about his last wishes. Completing it took about 30 minutes. A LegalZoom employee later reviewed Mr. Chuang’s answers and turned them into a will, which Mr. Chuang received about a week later.

“I don’t like lawyers. I think they’re extremely overpaid,” Mr. Chuang said. “With all the services on LegalZoom, I don’t see myself using a lawyer for anything, unless it’s a lawsuit.”

Recently, the increasing sophistication of software and services for estate planning, combined with growing consumer comfort with online financial management, has led to a boom in homegrown estate planning.

Between 2005 and 2006, downloads of Quicken WillMaker Plus increased nearly 33 percent, according to Nolo, the publisher. LegalZoom says sales of its estate planning documents are up 73 percent this year from last. And We the People, a storefront franchise that helps people fill out legal forms, has grown to 110 locations in 23 states from 25 locations in 2000, according to the company.

Comment: We used a will-maker software product for our wills. Legalzoom.com