Wells Fargo & Co. and Citigroup Inc.'s dispute over their competing agreements to acquire Wachovia Corp. became a battle of dueling state and federal judges Sunday.
In a ruling late Saturday, New York state Judge Charles Ramos put the Wells-Wachovia deal on hold until a hearing Friday. Ramos ruled over objections from Wachovia, which accepted Wells Fargo's $7-a-share offer Friday for the entire bank, brushing off Citigroup's agreement in principle earlier in the week to buy most of Wachovia's operations for $1 a share.
But Ramos' order was temporarily blocked Sunday by U.S. District Judge John Koeltl, who scheduled a hearing on the clash Tuesday in his New York courtroom.
In a statement Sunday before the federal judge's ruling, Wachovia indicated it would continue to stand by the Wells Fargo deal -- unless a better proposal emerged.
"Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers," it said. "Under that agreement, Citigroup is always free to make a superior offer to Wachovia."
The dispute clouds the outcome of one of the hasty shotgun marriages imposed by the Federal Reserve and bank regulators, who say they are acting to prevent a meltdown of the U.S. financial system.
What is emerging as a classic takeover battle can also be seen as a vote of confidence in the long-term prospects for that system.
Charlotte, N.C.-based Wachovia has been socked by losses, especially on exotic mortgages acquired in its 2006 purchase of Oakland's World Savings. Wachovia was put up for sale just over a week ago by the Federal Deposit Insurance Corp., which feared it could collapse any day.
New York's Citigroup and San Francisco's Wells Fargo, coveting Wachovia's sprawling retail operations in the East and Southeast, were the leading suitors, poring over Wachovia's books to evaluate the toxicity of its mortgages, loans to home builders and securitized commercial real estate loans.
But Wells Fargo walked away from the auction, saying it needed more time to analyze the data. Wachovia's board tentatively accepted Citigroup's offer Sept. 29, with details to be worked out and a final agreement signed later.
The pact, worth $2.2 billion to Wachovia shareholders, called for Citigroup to buy Wachovia's bank operations but not its brokerage firm, mutual funds or certain other assets.
