NEWS!!!!!!Saturday night Citibank Injunction issued.
Citi gets court order blocking Wells-Wachovia deal
6:07a ET October 5, 2008 (MarketWatch)
NEW YORK (MarketWatch) - Citigroup said late on Saturday that a New York court issued an order extending its agreement under which it has exclusive rights to negotiate a purchase of Wachovia Corp.
A deal between Wachovia and Citi was unveiled on Monday. But late on Thursday, Wachovia agreed to be acquired by Wells Fargo.
Responding on Friday to the Wachovia-Wells tie-up proposal, Citigroup claimed that it had exclusive rights and that Wachovia was not permitted to talk to anyone else.
A statement on Saturday from Citi said that Justice Charles Ramos of New York State Supreme Court, a trial court, issued an emergency injunction that extended Citi's exclusivity agreement with Wachovia. The judge issued the order over Wachovia's objection, Citi said.
The exclusivity agreement, Citi's Saturday statement said, "unconditionally bars Wachovia from negotiating or entering into a merger/acquisition agreement with any party other than Citi."
Justice Ramos set a hearing for Friday, Oct. 10, at which Citigroup and Wachovia must appear, Citi said.
Citi said on Friday and reiterated Saturday that it had been providing liquidity support to Wachovia Bank last week, since the two banks had agreed on a deal.
Citi said Friday that it had nearly completed the definitive agreements required to complete the deal. It demanded that Wachovia, Charlotte, N.C., and Wells Fargo, San Francisco, terminate their agreement. "Citi has substantial legal rights regarding Wachovia and this transaction," it said on Friday.
Wells Fargo's "conduct constitutes tortious interference" with the exclusivity agreement, Citi said on Friday.
The New York Times, citing a person briefed on the situation, reported on Saturday that Citi was seeking $60 billion of damages from Wells Fargo for interfering with the transaction.
In the statement Saturday, Citi said that it is "prepared to resume negotiating in good faith to complete the transaction contemplated by the agreement in principle" that it and Wachovia announced on Monday.
That deal would have seen Citi buy Wachovia's banking operations. Citi would have received Federal Deposit Insurance Corp. protection against losses on $312 billion of Wachovia's more troubled assets. Wachovia is one of the largest holders of option adjustable-rate mortgages. See full story
Shortly after it issued its Friday statement, Citi released the Exclusivity Agreement.
In a conference call Friday morning, Robert Steel, chief executive officer at Wachovia, addressed claims about a binding agreement with Citigroup by saying, "The controversy on this issue will be addressed in the appropriate way." He declined further comment.
One lawyer said on Friday that while the agreement shows that Citi has a case, it's unlikely that it would be able to persuade a court to overturn the Wells-Wachovia deal.
"If Citi goes to court, how could they show lost profits in this market and with all those toxic assets [involved in the deal]?" asked Roger Cominsky, partner at law firm Hiscock & Barclay. "Talk about a pyrrhic victory. The court could say, 'Yes the agreement was violated, but your deal is dead and you don't have any lost profits.'"
Citi said when the deal was announced that it could have been exposed to potential losses of $42 billion as a result of the acquisition.
In a move that reflects how Citi was blindsided by the Wells-Wachovia deal, Citi placed a full-page ad touting its deal with Wachovia in newspapers across the country on Friday, including USA Today.
"Citibank is honored to enter into a partnership with Wachovia," said the ad. "Together we will be part of the largest financial-services company in the world."
Citi's acquisition would have seen it pay $2.16 billion in stock to Wachovia, plus the $12 billion in preferred securities and warrants it gave to the FDIC. In return, Citi would have received $448 billion of bank deposits -- a large source of stable funding.
At the time, Citigroup CEO Vikram Pandit said the acquisition offered a rare combination of potentially high returns and low risk.
But that deal was trumped, with Wachovia agreeing late Thursday to a deal in which it would be folded into Wells Fargo. The new deal will not require any FDIC support, Wachovia said.
A source familiar with the situation said the Citigroup deal did not include a breakup fee, which would have made it more costly for Wachovia to break off discussions on a deal with Citi. See full story
On Friday Citi shares fell $4.15, or more than 18%, to $18.35. Wachovia shares leaped $2.30, or 59%, to $6.21.
And Wells Fargo shares slipped 60 cents, or 1.7%, to $34.56.
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