Legal News

In Wachovia, Citi Deal, Did S&C Overlook Some ?Small Stuff??

By Dan Slater

After hearing news this morning of Wells Fargo’s $15.4 billion takeover of Wachovia, we figured there’d be some legal fallout. After all, it was only days ago that the world thought that Wachovia had reached a $2.16 billion deal with Citigroup (albeit a deal only for Wachovia’s banking operations).

So we weren’t entirely surprised when we got word that Citi was threatening legal action over its jilting by Wachovia. Citi claims the letter of intent it reached with Wachovia contained an exclusivity agreement prohibiting Wachovia from trying to lure other bidders. Click here for the agreement. Here’s Citi’s statement, which says:

Wachovia’s agreement to a transaction with Wells Fargo is in clear breach of an Exclusivity Agreement between Citi and Wachovia. In addition, Wells Fargo’s conduct constitutes tortious interference with the Exclusivity Agreement.The Exclusivity Agreement provides, among other things, that Wachovia will not enter into any transaction with any party other than Citi, and will not participate in any discussions or negotiations with any third party. . . .Citi has demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction . . .

But did it have to be this way? An M&A partner at a large New York firm who spoke with us this morning says no. “Quite often, letters of intent don’t include exclusivity agreements.”

So why did this deal include such a provision? We lobbed a call over to Wachovia’s lawyer, S&C’s Rodgin Cohen, to find out. Cohen declined to comment on the record. But in looking for clues this morning, we came across this National Law Journal story entitled, “Crisis mantra for sleep-deprived M&A attorneys: don’t sweat the small stuff.”

Discussing the feverish pace of three recent billion-dollar bank mergers, the NLJ quoted Cohen in explaining how to put such deals together so quickly: “We all understood, you can’t sweat the small stuff.”

Thing is, exclusivity agreements just might be considered so much “small stuff” by a Delaware court. The M&A lawyer tells us that courts are generally reluctant to negate mergers that promise big gains to stockholders. This one does: Wachovia shareholders would get a 79% premium.

Wells Fargo was advised by a squad from Wachtell, Lipton, Rosen & Katz. Skadden, Arps, Slate, Meagher & Flom’s Eric Friedman, Greg Fernicola, Bill Sweet and Stuart Levi repped Citi.

Full post as published by Law Blog - WSJ.com on October 03, 2008 (boomark / email).