Wells Fargo & Co.'s agreement to acquire troubled Wachovia Corp. for $15 billion is a dream deal that bank analysts have discussed for years: a marriage of the strongest regional bank west of the Mississippi with a powerhouse in the Eastern and Southeastern United States.
The only problem: Wachovia already pledged its hand to another.
The Wells Fargo agreement, disclosed in a surprise announcement Friday, would give Wachovia shareholders $7 a share in Wells Fargo stock.
It came four days after Citigroup Inc. agreed to buy most of Wachovia for $1 a share.
The Citigroup deal was engineered by federal regulators, who deemed it necessary to avert a collapse of Wachovia that could have jeopardized the nation's financial systems.
The Citigroup deal would leave the Federal Deposit Insurance Corp. on the hook for any losses above $42 billion incurred by Citigroup as a result of taking over Wachovia.
The Wells deal would require no support from the government.
Which suitor would ultimately prevail remained unclear Friday, as the middleman role of federal regulators complicated what normally would have been a run-of-the mill corporate takeover battle.
Citigroup accused Wachovia of a "clear breach" of contract and Wells Fargo of illegally interfering with the pact, and raised the prospect of suing.
The FDIC said it stood behind the Citigroup agreement but suggested Wells Fargo's deal might be acceptable as well, after a regulatory review.
"This could very well wind up a law school case," said Len Rushfield, a Pepperdine University expert in banking and acquisitions.
Wells Fargo is known for its aggressive sales culture, and Wachovia for top-notch customer service, a combination the banks said would make them hard to beat. But the biggest motivation was geography -- the combined bank would have retail offices in 39 states.
"Just look at the map," said RBC Capital analyst Joseph Morford. "It would give Wells basically 20% of the deposits in California, Texas and Florida, the fastest-growing markets in the country."
There are just six states in which Wells and Wachovia both currently operate. One is California, raising the possibility of branch closures and job cuts. San Francisco-based Wells Fargo has 1,016 offices in California; Charlotte, N.C.-based Wachovia has 176, according to the FDIC's website.
