NEW YORK - Citigroup announced late last night that it had persuaded a New York judge to temporarily block Wells Fargo from acquiring Wachovia, firing the first shot in what could be a prolonged legal battle.
Citigroup has accused Wells Fargo of wrecking its plan to acquire Wachovia's banking operations for $2.2 billion, or $1 a share, in a deal arranged by the Federal Deposit Insurance Corp. Four days after that deal was struck, it fell apart when Wachovia agreed to Wells Fargo's offer to pay seven times as much for the entire company.
The underlying battle is over which company will emerge from the economic crisis in a stronger position among a smaller number of financial giants. Citigroup contends that the deal with Wells Fargo violates an agreement that prohibited Wachovia from having any sale or merger discussions with anyone other than Citigroup until tomorrow.
The order issued by a judge yesterday extends the term of that agreement until further court action, Citigroup said. A person briefed on the situation said that Citigroup was seeking $60 billion in damages from Wells Fargo for interfering with the initial transaction.
Efforts to reach a Wells Fargo representative late last night were unsuccessful. Christy Phillips-Brown, a Wachovia spokeswoman, said the bank "believes its agreement with Wells is proper, valid, and is in the best interest of shareholders, employees and American taxpayers."
"Under that agreement," Phillips-Brown added, "Citigroup is always free to make a superior offer to Wachovia."
The litigation could be a blockbuster, pitting some of the nation's largest surviving financial institutions against one another and giving work to the most expensive legal talent money can buy. Citigroup is represented by the New York lawyer Gregory P. Joseph; Wachovia by David Boies of Boies, Schiller & Flexner; and Wells Fargo by Paul K. Rowe of Wachtell, Lipton, Rosen & Katz, according to people briefed on the matter.
Until late Thursday, Citigroup believed it had reached a deal with Wachovia after protracted talks last weekend under intense pressure from federal regulators worried about Wachovia's financial condition. Regulators agreed to help Citigroup by absorbing losses over $42 billion.
Late yesterday, after several hours of intense legal jockeying, Ramos issued an injunction effectively blocking the Wells Fargo deal, pending a hearing scheduled for Friday.