Wells Fargo agrees to buy Wachovia, touching off battle with Citigroup

NEW YORK - A battle broke out yesterday for control of Wachovia, as Wells Fargo agreed to pay $14.8 billion for the struggling bank, while Citigroup and federal regulators insisted that Citi's earlier and lower-priced takeover offer go forward.

The surprise announcement that Wachovia Corp. agreed to be acquired by San Francisco-based Wells Fargo & Co. in the all-stock deal - without government assistance - upended what had appeared to be a carefully examined arrangement and caught regulators off guard.

Wells's original offer totaled about $15.1 billion, but since the value of its shares closed down 60 cents yesterday, the deal is now valued at about $14.8 billion.

Only four days earlier, Citigroup Inc. agreed to pay $2.1 billion for Wachovia's banking operations in a deal that would have the help of the Federal Deposit Insurance Corp.

The head of the FDIC said the agency is standing behind the Citigroup agreement, but that it is reviewing all proposals and will work with the banks' regulators "to pursue a resolution that serves the public interest."

Citigroup, which demanded that Wachovia call off its deal with Wells Fargo, said its agreement with Wachovia provides that the bank will not enter into any transaction with any party other than Citi or negotiate with anyone else.

Barring legal action, the future of Wachovia will be determined by the bank's shareholders and regulators, which both have to approve a final deal.

It was clear which they preferred yesterday, as Wachovia shares climbed as much as 80 percent.

By law, the FDIC is required to find the least-costly resolution for taxpayers, said Roger Cominsky, partner in law firm Hiscock & Barclay's financial institutions and lending practice. The Wells Fargo deal would not rely on any assistance from the government.

The Federal Reserve, which has regulatory oversight of the three big banks, said it hasn't had time to review the proposed sale of Wachovia to Wells Fargo but will work to ensure that all creditors and depositors of Wachovia are protected.

Under Wells Fargo's deal, Wachovia shareholders would receive 0.1991 shares of Wells Fargo for every share of Wachovia they own, valuing Wachovia at about $7 per share. This is a nearly 80 percent premium to the stock's Thursday closing price of $3.91. Shares closed at $10 on Sept. 26, the last trading session before the deal with Citigroup was disclosed.

"Wells' deeper and more considered due diligence has probably revealed fewer risky assets and a larger number of higher valued assets than originally thought," said Anant Sundaram, professor of finance at the Tuck School of Business at Dartmouth College in an e-mail.

"Although it is still too early to tell," Sundaram said, "this could presage a significant shift in market sentiment toward the value of companies such as Wachovia, and may suggest that there has been an overreaction in the downdraft that we saw in the past few weeks."