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Wells Fargo tops Citigroup Wachovia bid: Future still unclear for bank with quarter of Richmond market
(Richmond Times-Dispatch (VA) Via Acquire Media NewsEdge) Oct. 4--Wells Fargo & Co. trumped Citigroup Inc.'s bid for Wachovia Corp. yesterday, offering a cleaner and better deal for the Charlotte, N.C.-based bank.
Wells Fargo's offer, valued at $7 a share, is for the entire Wachovia operation, not just the banking operations that New York-based Citigroup had planned to buy for $2.16 billion, or the equivalent of $1 a share.
Still, the future of Wachovia, which has 25 percent of the retail banking market in the Richmond area and is one of the area's largest employers, was far from clear even after Wells Fargo's $15.1 billion all-stock bid.
Citi protested the deal, claiming it has an exclusive agreement with Wachovia. Citi's deal was engineered last weekend, with Wachovia teetering on the verge of collapse, by the Federal Deposit Insurance Corp.
"Once you get through all the legal wrangling, the Wells Fargo deal is better for Wachovia shareholders, better for the brokerage and worse for Charlotte, which won't have nearly the same number of jobs," said Michael Jones, chairman and chief executive of Riverfront Investment Group, an asset management firm in Chesterfield County.
Well Fargo's headquarters will remain in San Francisco. However, the combined company would have a strong presence in Charlotte, which would be the headquarters for the bank's East Coast banking business, Wells Fargo said in statement. Wachovia employs about 20,000 in Charlotte.
St. Louis, Mo., will remain the headquarters for its brokerage, Wachovia Securities, which is moving there from Richmond.
It's unclear what the other ramifications are for Wachovia's Richmond-area operations. It employs about 4,100 people in the Richmond area and 10,500 people statewide.
Wachovia's roots go deep here, as thousands of people from the area bought stock in legacy Richmond banks that were eventually absorbed into Wachovia through acquisitions.
Wachovia's undoing was its purchase in 2006 of California lender Golden West Financial Corp., which held piles of bad mortgage debt, analysts say. Ironically, Citi is not the healthiest bank either, experts say.
The FDIC stood by the Citi deal yesterday, but said it would review all proposals and pursue a resolution that serves the public interest.
In the Citi deal, the FDIC had agreed to absorb up to $42 billion in losses should Wachovia's $312 billion pool of loans turn bad. In return, it would receive $12 billion in preferred stock and warrants from Citi for taking on possible future risks.
A key difference in the Wells Fargo offer is that it could proceed without government assistance.
"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," Robert Steel, Wachovia's president and chief executive, said in a statement.
Under terms of the new offer, which was approved unanimously by the boards of both companies, Wachovia shareholders would receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock.
"If this was strictly an economic decision and I was in charge, I would anoint Wells Fargo," said Ken Eades, professor of business administration at the University of Virginia Darden School of Business. "It's too bad things got so tight with Wachovia that it didn't get the deal done before with Wells Fargo."
Wachovia's move to join with Wells Fargo while it still had an agreement in principle with Citigroup was bold, Eades said.
"But these are not normal times. The weight of the economy is on Wachovia's side, even though it's not clear the law is on its side."
There's a good chance that Wachovia shareholders would not have approved the Citi deal at $1 a share, Eades said.
It's also possible that Citigroup could enter into a bidding war for Wachovia, he said.
Susan Hankins, a Richmond shareholder, said the deal with Wells Fargo is better, but still not good.
"It's slightly better. It's slightly more encouraging," she said. "But it's all still stunning and disappointing."
A year ago, the stock was trading at nearly $52 a share. It closed at $6.21 yesterday, up $2.30. Monday, after the Citi deal was announced, it closed at $1.84.
Hankins said she inherited 11 shares of a Richmond bank, which became Jefferson National Bank and ultimately part of Wachovia, from her grandmother in 1966.
By 2000, those 11 shares had turned into more than 1,000 shares through stock splits and dividend reinvestments, Hankins said. She sold some stock in 2002, but still had 475 shares.
"Suddenly, it was worth virtually nothing," she said.
Heather Brougham of Henrico County, who has checking, savings and retirement accounts with Wachovia, said she feels better about the new deal, but her confidence is still shaken.
"I'll stick it out for now," she said.
Jones, with Riverfront Investment Group, said Wachovia's deal with Wells Fargo should bring stability to the bank and brokerage, the latter of which was in a precarious situation.
Since it was not part of the Citi deal, the brokerage was likely to be sold, many analysts reported. The brokerage is the third largest in client assets, behind Merrill Lynch and Smith Barney.
"In my opinion, the deal will go through, but only after Citi extracts a pound of flesh from Wachovia," Jones said.
"It's unclear what a court would do," said Elizabeth Nowicki, an associate law professor at Tulane University School of Law and a former faculty member at the University of Richmond.
Wachovia is obligated by its exclusivity agreement to continue to negotiate with Citi, she said.
"Citi has a legal claim to wave around," she said. "The claim may be enough to pay Citi to go away. Citi could use the money."
Contact Carol Hazard at (804) 775-8023 or chazard@timesdispatch.com.
To see more of the Richmond Times-Dispatch, or to subscribe to the newspaper, go to http://www.timesdispatch.com.
Copyright (c) 2008, Richmond Times-Dispatch, Va.
Distributed by McClatchy-Tribune Information Services.
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