Legal Village

Fasten your seatbelts: Citigroup/Wachovia fight heats up over Wells Fargo deal

Posted 6/10/2008 by Dimitra Kessenides

It was a busy weekend for the lawyers on the various pieces of the Citigroup-Wachovia-Wells Fargo deals and litigation.

Just as we were writing up this post on the events of the last two days, word came through that New York Appellate Court associate justice James McGuire had vacated New York Supreme Court justice Charles Ramos's Saturday order blocking the Wachovia-Wells Fargo deal.

The ruling came on the same day as an emergency Sunday hearing before New York district court judge John Koeltl at which Boies, Schiller & Flexner 's David Boies, representing Wachovia, asked the judge to allow the Wachovia-Wells deal to proceed, according to reports in AP and Bloomberg .

The federal bailout bill - signed into law shortly after the House passed the measure on Friday (3 October) - includes language covering the banking industry that allows for a better offer to be considered, according to the Bloomberg report , Boies told Koeltl.

Wachovia has filed its a lawsuit against Citigroup in the southern district of New York, claiming an exclusivity agreement Citi is pointing to attempting to stop the Wells Fargo deal is not valid.

"This is a legal issue that could be decided very quickly," Koeltl said of the matter. "What was an institution that needed assistance now has another transaction it views even more favorably."

Still, Koeltl declined to rule and instead scheduled a hearing for 7 October before a judge to be permanently assigned to the case.

OK, let's back up some to review how it all came to this.

Well before we posted news of the Wachovia - Wells Fargo deal on Friday, ditched suitor Citigroup didn't hold back, threatening action over the move. Citi had announced a deal to acquire Wachovia's retail assets for $2.1bn (£1.16bn) on 29 September. The bank released an angry statement Friday morning , responding to the news that Wachovia had agreed to a much sweeter $15.1bn (£8.38bn) deal with Wells Fargo.

The legal battle was launched, full force, this weekend. As reported by the New York Times Sunday morning, Ramos temporarily blocked the Wells Fargo deal from moving forward following a Saturday hearing on Citi's motion (the bank has not technically filed its lawsuits yet against Wachovia and Wells Fargo). The "hearing," unconventional by any measure , was held in Ramos's Connecticut home with Boies and lawyers for Wells Fargo making their case by phone (McGuire vacated Ramos's order, in part, because of the setting).

Citi is claiming the Wells Fargo deal violates an agreement it had reached with Wachovia, preventing the latter from engaging in any sale or merger discussions with other parties before 6 October. Ramos's order extended the term of the agreement until a hearing on the matter scheduled for 10 October.

Citigroup is represented by former Fried Frank litigator Gregory Joseph and his partners Pamela Jarvis, Douglas Pepe, and Paul Bschorr of the Gregory P. Joseph Law Offices . Wachovia is relying on David Boies and George Frampton, while Wells Fargo is represented by Wachtell Lipton Rosen & Katz 's Paul Rowe and Friedman Kaplan Seiler & Adelman's Eric Seiler.

Wachovia and Wells Fargo intend to follow through with the deal, according to a statement released Sunday (5 October) by Wells Fargo.

Late breaking news from the Wall Street Journal and Reuters say the Fed is now stepping in to attempt to bring City and Wells Fargo together to discuss and resolve the matter.

Posted on 6 October by Dimitra Kessenides on the website of The American Lawyer, Legal Week’s US sister title.