Wells Fargo acquiring Wachovia for $15.1 billion

Posted by Kris | Friday, October 03, 2008 | | 0 comments »

It is a good thing i bailed out my put position as noted in the previous posts.

Wells Fargo to acquire Wachovia for $15.1 billion in all-stock deal, ends Citigroup talks

NEW YORK (AP) -- In an abrupt change of course, Wachovia said Friday it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal, trumping rival suitor Citigroup's plan to acquire Wachovia's banking operations.

A key difference is that the Wachovia deal will be done without government assistance, while the Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp.

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," Robert Steel, Wachovia's president and chief executive, said in a statement.

The Wachovia-Wells deal, announced Friday, comes in a turbulent time for banks and financial firms as they grapple with the ongoing credit crisis, which led to the recent bankruptcy of Lehman Brothers Holdings Inc. and the failure of Washington Mutual Inc.

Wachovia Corp. shareholders will receive 0.1991 shares of Wells Fargo for every share of Charlotte, N.C.-based Wachovia stock they own, valuing Wachovia at about $7 per share. This is a nearly 80 percent premium (GOOD deal here for those who bought like USD1-4 range)over the stock's Thursday closing price of $3.91. Shares closed at $10 last Friday, the last trading session before the deal with Citigroup Inc. was announced.

The board approved Wells Fargo's offer late Thursday. The deal is still subject to Wachovia shareholder and other regulatory approvals. Wells Fargo said it expects the deal to close by year-end. ( If this don't happen, the price will surely drop like HELL)

Additionally, Wells Fargo plans to issue up to $20 billion of stock, primarily common stock, to maintain a strong capital position.

The combined company will have total deposits of $787 billion and assets of $1.42 trillion, more than doubling Wells Fargo's totals on both counts. The bank will operate more than 10,000 locations. The two banks currently employ a combined 280,000 people.

On Monday, Citigroup agreed to buy Wachovia's banking operations for $2.16 billion in a deal orchestrated by the federal government. That deal, which had been approved by the boards of both companies, was still subject to approval by Wachovia's shareholders and regulators. It is not clear whether Citigroup will be entitled to a break-up fee. (BG relationship?)

Wachovia, like Washington Mutual, which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offered very low introductory payments and let borrowers defer some interest payments until later years. ( The one caming with the bright idea in the 1st place that caused all this mess)Delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks.

This summer, Wachovia reported a $9.11 billion loss for the second quarter, announced plans to cut 11,350 jobs -- mostly in its mortgage business -- and slashed its dividend. Wachovia also boosted its provision for loan losses to $5.57 billion during the second quarter, up from $179 million in the year-ago period.

Wachovia shares were up $2.89, or 74 percent, at $6.80 in premarket trading, while Wells Fargo rose $2.09, or 5.9 percent, to $37.25. Citigroup shares were down $3.30, or 14.7 percent, to $19.20