The stunning reversal of the Wachovia deal has landed in the courtroom of Judge Charles Ramos of the New York Supreme Court, who granted Citi a temporary stay late on Saturday night, restraining Wachovia from going ahead with the competing bid by Wells Fargo (See: Wells Fargo edges Citi to grab Wachovia for $15.1 billion)
As it was late Saturday afternoon, Judge Ramos's home in Cornwall became the temporary courtroom where the judge granted the stay in favour of Citi after hearing the arguments of the representatives from the banks for nearly three hours. Citi could not file the suit officially in the court since it was closed for the weekend.
Citi had filed a 16-page affidavit against Wells Fargo, Wachovia, and their respective boards, naming them as defendants, and cited its ''exclusivity agreement'' with Wachovia on the planned acquisition of Wachovia's banking assets for $2.2 billion, brokered by the US government last Monday.
In its submissions, Citi sought damages of $60 billion from Wells Fargo for interfering with its initial acquisition of Wachovia (See: Citi fumes as Wells Fargo steals Wachovia)
The ''exclusivity agreement'' signed between Citigroup and Wachovia, which was released to the press on Saturday by Citi, states that Wachovia will not seek out another bidder, nor will it provide information or enter talks that might facilitate a rival bid. The exclusivity agreement is set to expire today, 6 October.
With the fight over the control of Wachovia intensifying, Citi and Wachovia will have to appear before the court on 10 October. In a statement released by Citi said that it was prepared to continue negotiating with Wachovia, but that Wachovia could not speak to others.
Citigroup has accused Wells Fargo of interfering with its acquisition by doing a back door deal to acquire Wachovia for more than $16 billion just four days after Citi struck a deal to acquire Wachovia's banking operations for a little over $2 billion last Monday, a deal brokered and backed by the US government. It has asked for nearly four times the amount Wells Fargo has offered Wachovia as damages.
Till late on Thursday night Citi's top executives were working out the operational details and integration plans with Wachovia executives and had no inkling to the backdoor negotiations that Wachovia was having with Wells Fargo simultaneously.
Wells Fargo announced on Friday, that it had signed an agreement to buy the whole of Wachovia, including its asset management unit and retail brokerage, for about $15 billion.
Commentators say that Wachovia is most likely to put forward the argument of its fiduciary obligations, by keeping the interests of its investors above all, in its consideration of the Wells Fargo offer, and moreover it did not require government support or the taxpayer's money.
Wachovia said that its agreement with Wells Fargo was valid and and is best for shareholders, employees and US taxpayers. It also said that Citi alays had the liberty of making a superior offer.
On the other hand, some lawyers feel that Citi indeed has a strong case, since Wachovia has signed the ''exclusivity agreement'' and has been accepting liquidity support from Citi, ever since a deal was announced between the two banks last Monday.
The Federal Deposit Insurance Corporation, which had brokered the Citi deal, said that until a review of Wells Fargo's offer is completed, the agency would stand behind the Citigroup deal. Other bank regulators said they had not evaluated Wells Fargo's offer.
According to the New York Times, the FDIC and bank regulators are in a tight spot as ''The Wells Fargo deal may be better for taxpayers, but if it succeeds, in the future other financial institutions may not be willing to help the government, as Citigroup did, because of the risk that they might not reap the anticipated benefit.''.
Media reports, quoting an unnamed an Wachovia official, said that Citigroup's actions were a pointless legal manoeuvre designed to destabilise the Wells deal.