Fed intervenes as Wachovia gets Citi's stay overruled

06 October 2008

The stay that Citi obtained on Saturday afternoon from the New York supreme court, restraining Wachovia from going ahead with the competing bid from Wells Fargo, was overturned by a New York state appeals court last night as Wachovia obtained a restraining order preventing Citi from interfering with its deal to sell the entire company to Wells Fargo.

Citi had offered to acquire the banking business of Wachovia for $1 per share against the Wells Fargo offer of $7 per share for the whole enterprise (See: Citi to acquire Wachovia assets in a US government-backed rescue) 

Citigroup had accused Wells Fargo of interfering with its acquisition by doing a backdoor 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 had asked for $60-billion damages from Wells Fargo for interfering with its original acquisition (See: Citi seeks $60-billion damages from Wells Fargo).

Wells Fargo and Wachovia rushed to the state appellate court to get the stay obtained by Citi overruled but the US district court judge refused to pass an order till both sides presented their case on Monday.

Wachovia then sought state appeals court intervention on Sunday night where Judge James McGuire overruled the previous order by Judge Ramos at his Cornwall residence, saying, "I believe substantial questions have been raised regarding the authority of Justice Ramos to have issued the order while physically located outside the state of New York.''

Wachovia had pointed out that the ''exclusivity agreement'' that it had signed with Citi, had no bearing on the Wells Fargo offer, as the $700-billion bailout planpassed by the US Congress, states that such exclusivity agreements are not tenable by law as they hamper the merger of banks.
Citi has said that it will appeal the ruling as the language used in the bailout plan regarding this is debatable.