Wachovia Battle Continues, Judge Stops Wells Fargo

Citigroup won a victory over the weekend as a judge stopped Wells Fargo from moving forward with the Wachovia merger. Citi announced plans to merge with Wachovia, but Wells Fargo later swooped in with a better offer.

An injunction prohibits Wells Fargo from moving the deal forward until Citi can prove whether or not Wachovia was allowed to look at other options. They argue that Wachovia cannot back out of the Citi deal, and of course Wells Fargo and Wachovia disagree.

The battle is interesting because the Citi deal involves backing by the FDIC - if losses exceed a certain limit, then the FDIC (and therefore potentially taxpayers) will step in. Wells Fargo also offered a higher price. However, some argue that Wells Fargo missed a bidding deadline, and that announcing the Citi deal kept Wachovia afloat (as in, Wachovia would have failed if the Citi announcement never came). So, the battle is not just about federal resources and the offering price, it's about breach of contract and how negotiations take place.

Further reading:

• WSJ: Legal Battle for Wachovia Heats Up