Wachovia: Citi out, Wells Fargo in (maybe)


Wells Fargo has cut a $15.1 billion deal to buy Wachovia, trumping the deal previously announced with the FDIC’s blessing to have Citigroup buy Wachovia’s banking operations for $2.1 billion. Citi quickly fired back, insisting that it has exclusive rights to negotiate a deal and over the weekend announced that a state court in New York had issued an injunction blocking the transaction with Wells Fargo. Federal regulators said they would have to study the Wells Fargo proposal. Wall Street, however, rendered a quick verdict – sending Wachovia and Wells Fargo shares up, and Citi down.

Under terms of the agreement, which was approved unanimously by the boards of both companies, Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock. The transaction, based on Wells Fargo’s closing stock price of $35.16 on October 2, 2008, is valued at $7.00 per Wachovia common share for a total transaction value of approximately $15.1 billion. Wachovia has almost 2.2 billion common shares outstanding. The companies said the agreement requires the approval of Wachovia shareholders and customary approvals of regulators.

Robert K. Steel, President and CEO of Wachovia Corp, noted that the deal with Wells Fargo would not require the FDIC support that had been a key component of the baking sale to Citi.  “This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support. The market presence and composition of our businesses, along with our service-oriented cultures, are extraordinarily complementary and this combination creates great potential for sustained stability and growth,” he said.

“Wachovia’s brokerage and asset management businesses, which would have been left behind in the prior proposal, are tightly interwoven with Wachovia’s core banking business – and this agreement avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia’s team members and customers,” said Wells Fargo Chairman Dick Kovacevich.

The combined company will retain a strong presence in Wachovia’s headquarters city, Charlotte, which will be the headquarters for the combined company’s East Coast retail and commercial and corporate banking business. St. Louis will remain the headquarters of Wachovia Securities. In addition, three members of the Wachovia Board will be invited to join the Wells Fargo & Company Board when the transaction is completed.

RBR/TVBR observation: The good news for broadcasters is that Wells Fargo – assuming it eventually triumphs with its superior bid – is buying all of Wachovia, including Wachovia Securities. The Citi deal left Wachovia Securities something of an orphan, no longer connected to either a commercial bank or an investment bank. Like so many banks, Wells Fargo offers brokerage services, but Wells Trade doesn’t appear to be on nearly the scale of Wachovia Securities, so this would really beef up Wells Fargo in the investment business. And that major league brokerage business would need a strong stable of analysts. We can highly recommend the quality of analysis by the radio and TV teams at Wachovia – captained by Marci Ryvicker for equities and Bishop Cheen for bonds.