Wells Fargo & Co. undercut Citigroup last night by offering $15.1 billion for Wachovia in a much better deal for everyone involved (except Citigroup).
Wells Fargo, the west coast banking giant, says its deal is better because it is offering to buy Wachovia whole (Citigroup didn't want the asset-management and brokerage operations), is offering a higher price (Citigroup only offered $2.16 billion), and–most importantly–won't rely on government support in the deal (Citigroup's deal depended on the FDIC picking up $42 billion in deposit losses).
According to the Wall Street Journal, "Wells Fargo would pay about $7 a share in stock at Thursday's closing price and assume Wachovia's preferred stock and debt. In conjunction with the deal, Wells Fargo plans to issue up to $20 billion in new securities, mainly common stock."
Citigroup is fighting back, saying its federally arraigned deal is exclusive and they have the right to negotiate the final terms of the buy out with Wachovia. They claim they have already offered cash to stabilize Wachovia and might sue to block the deal. Citigroup could offer more money or reject the FDIC money to try and sweeten their offer. However, last night both the boards of Wells Fargo and Wachovia agreed to their all-stock buy out deal.
The government continues to support Citigroup, after the Fed and FDIC arraigned the deal, saying they "will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest."
If Wells Fargo succeeds they will emerge as one of the largest banks in the US and significantly expand to east coast operations. Their deal would be one of the biggest in the whole financial market restructuring and would create a "universal bank, combining commercial banking, retail brokerage and some investment banking, and join the few U.S. banks with a coast-to-coast retail branch network."