Charlotte, Citigroup, Citigroup stock price
Chuck Burton/AP
A ticker with Citigroup's stock price at the Wachovia Securities office in Charlotte, N.C.,
on Friday, Oct. 3, 2008.

Citigroup Halts Wells Fargo Takeover of Wachovia

October 05, 2008 03:17 PM
by findingDulcinea Staff
Citigroup won a delay in court to save a government-backed takeover of the failing Wachovia, after Wells Fargo moved in with a more generous offer.

Citigroup Demands Wells Fargo Honor Previous Offer

One of the nation’s largest bank sales has been thrown into doubt after Citigroup successfully halted the sale of Wachovia to Wells Fargo & Co., alleging that the bank had undermined an earlier takeover attempt organized in collaboration with the Federal Deposit Insurance Corp (FDIC).

The Wells Fargo deal valued Wachovia at $14.8 billion, a significantly higher purchasing price than the original $2.16 billion bid made by Citigroup last week for Wachovia’s banking unit. Part of the Citigroup deal, which had already been approved by both banks’ boards, would have entailed the New York bank picking up $53 billion of Wachovia’s debt and $42 billion worth of losses of its $312 billion in loans. The FDIC was to cover the rest of the losses for $12 billion in preferred stock and warrants from Citigroup.

Citibank insisted that their initial offer came with an exclusive agreement barring Wachovia from accepting any other offers. However, four days after the Citigroup sale was announced, Wachovia announced the preferable Wells Fargo bid.

The FDIC has announced it still supports the earlier deal but would monitor the court proceedings and work to find an agreement that would satisfy all three parties.

Wells Fargo's buyout plan was in stock, meaning that Wachovia shareholders would get some 0.1991 shares of Wells Fargo stock per Wachovia share. In addition to releasing $20 billion in securities, the lion’s share of it common stock, Wells Fargo was also scheduled to take responsibility for Wachovia’s debt and preferred stock.

A combined Wells Fargo-Wachovia would have total assets of $1.42 trillion, a deposit base of $787 billion, and 10,000 bank branches. Wachovia shareholders and U.S. financial regulatory authorities still have to greenlight the deal.

Wells Fargo CEO Dick Kovacevich was quoted as saying by the Associated Press that the Wells Fargo deal “provides superior value … to acquire only the banking operations of the company and because Wachovia shareholders will have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world’s great financial services companies.”

If the Wells Fargo bid were to go through, Charlotte would remain the home of Wachovia’s retail, commercial and corporate banking units. Wachovia Securities would keep its current base in St. Louis.

The sale of Wachovia to Citigroup was making many in Charlotte uneasy, as the banking sector is a major employer in the city. Wachovia employs 20,000 people in Charlotte, according to the Observer. In 2006, it was the city’s second-largest employer, behind Carolinas HealthCare System, which employed 26,283, according to the city’s chamber of commerce.

Charlotte Mayor Pat McCrory told the Charlotte Observer on Monday, when it looked like the Citigroup offer would go through, that “it is essential that Wachovia maintains a strong presence in North Carolina.”

Bank of America, which took over Merrill Lynch in mid-September, also calls Charlotte home. Banktown, as the city is also known, is the 20th largest city in the United States.

Opinion & Analysis: The fate of Charlotte

Mary Newsom, on her blog “The Naked City,” wonders what will happen to a 48-story tower Wachovia had been building in Charlotte.

“Will it stop the tower under construction? I think that’s unlikely. But an oversupply of office space may cause uptown rents to sink. Call it ‘affordable housing for offices,’” she wrote. Wachovia was supposed to take half the office space in the 1.5 million square-foot tower, which, as of June, had been fully leased, she said.

At the blog Ask Doug Smith, Doug says Banktown will never be the same.

“This is the day Charlotte leaders and financial analysts feared would come but hoped they would never see. Wachovia, so long the hunter, became the hunted,” Smith wrote. 

The financial clout the town got from having a large bank headquarters was a “recruiting tool” for Charlotte’s Chamber of Commerce, and gave “civic boosters something to brag about,” he said. 

Not everyone has been sympathetic to Charlotte’s possible plight. Yvette Kantrow, writing on the site, asked Banktown, “how does your barbecue taste now?” She said when Bank of America bought Merrill Lynch, the Observer gloated about a New York bank having to move down South.

Kantrow quoted columnist Doug Smith as saying, “When the merger is completed, those New York City dudes will be reporting to a Southern bank in a city where NASCAR rules and pork barbecue is gourmet cuisine. The North is taking note that the South has power and influence. And tasty barbecue. I bet those Merrill Lynch investment bankers will like it.”

Background: CEO retired in June at board’s request

Problems had been plaguing the bank for several months. Kennedy Thompson was forced into retirement in June after Wachovia had lost half its market value in a year, according to findingDulcinea.

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