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Where Is Citi's M&A Expertise?

by: Felix Salmon October 06, 2008 | about stocks: C / WB / WFC    
Felix Salmon

Felix Salmon

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Bill Ackman made an interesting point at the Value Investing Congress today: Citi (C) announced its deal with Wachovia (WB) on Monday September 29, at which point both boards had signed off on it. Given that all the specifics were in place, how come there was no signed deal agreement come Friday October 3, when Wells Fargo (WFC) came galloping in to ride off into the sunset with all of Wachovia? A good lawyer, said Ackman, can put that kind of an agreement together overnight: It certainly shouldn't take a full week.

If an agreement had been signed, then Citi would be in a much stronger position right now. Rather than desperately litigating exclusivity agreements, it could demand very specific breakup fees and the like. Instead, it's desperately trying to pay Wachovia more money for fewer assets.

Did Citi simply take its eye off the ball, in not forcing a Wachovia exec to sign a deal immediately after it was approved? Were they played by Wachovia's Robert Steel, who never really wanted the Citi deal but who knew that he needed something so that he could survive the week and come out the other side in the arms of someone more attractive? No one knows for sure, but it certainly looks that way.

Citigroup is in massive M&A mode these days: it's not only bidding for distressed assets; it's also trying to sell off non-core assets like the German retail bank, which went to France's Credit Mutuel. Right now, it needs nothing so much as world-beating M&A expertise. If it can be caught as flat-footed as it looks right now, that bodes ill for any future deals.

Incidentally, trading in Wachovia was suspended for about 12 minutes shortly after noon today. No one seems to know why. But given that Wells Fargo is willing to pay $7 a share, and that there seems to be some kind of bidding war going on, it's peculiar that Wachovia's only trading at $5.75: I would have expected it to be trading over $7 a share, not under, even after accounting for the fact that Well's Fargo's offer is an all-stock deal and Wells shares are down 5% today.

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This article has 3 comments:

  •  
    Oct 06 07:16 PM
    Citi sued WB and WFC asking for $60 billion, comprised of $20 billion in compensatory damages and $40 billion in punitive damages. If there really is $20 billion of compensatory damages, then Citi's offer of $2 billion with FDIC backstop on losses for just the banking assets was way under market. For that matter, WFC's $15 billion offer for all of WB was also undermarket. The FDIC's normal role is to protect the depositors. If they want to play matchmaker, then they need to realize that their new role is to maximize value to the shareholders.
    Reply
  •  
    Oct 06 09:11 PM
    Citi bank has to many overseas connections that helps the USA keep the dollar strong. Dividing up Wachoiva is good and then both Well and Citi can remain in good shape. Along with the banking system.
    Reply
  •  
    Oct 06 10:20 PM
    FDIC going wild is making bank failures instead of avoiding bank failures. With the new government plan Wachovia must sell off those toxic loans at a cost or a little lower and take a hudge advantage of the tax benefits, that will demonstrate the american people that the government plan works.
    Reply
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