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Citigroup Inc. Message Board

  • stanesqauto stanesqauto Oct 3, 2008 7:48 PM Flag

    Analysis from an M&A lawyer

    The exclusivity agreement’s wording is perfect, in terms of Citigroup being able to get an injunction against any merger or sale of Wachovia, or any significant part thereof, into any entity other that Citigroup:

    1. A very detailed description of conduct by Wachovia which is prohibited, i.e. making any deal with anyone other than Citigroup.

    2. A recitation by Wachovia that damages payable to Citigroup (for breach of contract) are an inadequate remedy to protect Citigroup from losses if the agreement is breached. That is the “magic legal language” to entitle Citigroup to a temporary restraining order, preliminary injunction and permanent injunction to stop the sale or merger of Wachovia into Wells Fargo.

    3. An acknowledgment that Citigroup is entitled to the remedy of “specific performance”, meaning that the court can force the cancellation of the Wachovia-Wells Fargo contract (or force Wells Fargo to sell the branches and bank assets to Citicorp at the agreed price.)

    4. A paragraph reciting that New York law applies to the enforcement of the contract and reciting that the only court with jurisdiction over Wachovia is the FEDERAL or state court in Manhattan. Specifically, Wachovia waived the right to remove any litigation with Citigroup to any other court.

    A Chapter 11 by the Wachovia parent, or a sale of Wachovia to Wells Fargo quickly forced by the FDIC may get the deal done at the least cost to the taxpayer. However, Citigroup can prove massive actual damages because of the breach of and interference with its exclusivity contract, the damages being the cost of creating a branch structure which parallels that of Wachovia, which Citigroup was buying on the cheap. Those actual damages are not speculative.

    The colossal breach of the exclusivity agreement by Wachovia will at the very least bring a massive damage award against Wachovia destroying any shareholder’s equity created by the Wells Fargo purchase price.

    Such a massive actual damage proof will also bring a massive tort damage award against Wells Fargo and its individual officers involved, probably including punitive damages. Wells Fargo’s insurer will insist that the Wells Fargo officers’ actions were intentional and as a result no insurance coverage will be available to pay Citigroup’s damage claim. Conceivably such a large uninsured damage award could destroy Wells Fargo’s net worth and shut down that bank.

    LGB’s comment that “the shareholders wouldn’t vote for the Citi deal” shows he’s never seriously litigated. That issue isn’t relevant in the tort claim against Wells Fargo or Wachovia, and is a jury question, for a New York jury, on any breach of contract claim.

    This was posted by a 30 year litigator who does M&A exclusively.

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