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Citi pulls out of bid for Wachovia, will press damages
2008-10-09
Citigroup said Thursday it was ending court efforts to block a merger of banking rivals Wachovia and Wells Fargo, but vowed to press its claim for breach of contract damages. "Citi believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisors and others for breach of contract and for tortious interference with contract," the US banking group said in a statement. "Citigroup plans to pursue these damage claims vigorously on behalf of its shareholders. However, Citigroup has decided not to ask that the Wells Fargo-Wachovia merger be enjoined." Citi, which has sought 60 billion dollars in damages in a lawsuit claiming its merger with Wachovia was illegally ended, said it was prepared to go ahead with its takeover but that it had reached no agreement with Wells Fargo in several days of talks. "The dramatic differences in the parties' transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement," Citi said. After agreeing to a US government-backed deal forged on September 28 with Citi, Wachovia reversed course and announced days later its preference for Wells Fargo. The New York State Supreme Court granted an injunction to Citigroup, which claimed Wachovia illegally backed out of the exclusive deal. The state's appellate court overturned that, drawing praise from Wells Fargo and Wachovia. The parties agreed to halt action for several days to discuss the matter, with regulators involved as well. Wachovia, the fourth-largest US bank by assets, faced a near collapse of its share price and weakening confidence because of its exposure to the subprime mortgage crisis. New York-based Citigroup had agreed to assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia; the government's bank insurer pledged to absorb losses beyond that and take a stake in Citigroup for the guarantee. The planned acquisition by Wells Fargo, which traces its roots to the Wild West and the 19th century gold rush in California, would give it the biggest network of branches in the United States. Wells Fargo offered 15.1 billion dollars in an all-stock deal to buy all of Wachovia and it stressed that its proposal did not have any government involvement or taxpayer risk. Citigroup offered to pay 2.16 billion dollars in stock for Wachovia's banking activities and some of its debts. Citi said: "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 .... Citi's transaction, which it remains willing to complete, protected Wachovia's holding company debt and its subsidiary banks, while limiting the risk to Citigroup and generating value for its shareholders." There was no immediate comment from Wachovia or Wells Fargo.
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