So can Citigroup force a deal with Wachovia to go through?: Maybe not. Wells Fargo could have been taking a big bet on the “specific performance” clause in the agreement. Usually, a specific performance clause in a merger agreement allows one party to force the other to go through with the deal. In this case, according to Nowicki’s analysis, the “specific performance” only applies to the terms of the letter, which are exclusive negotiations. Nowicki believes that the letter only allows Citigroup to force Wachovia to negotiate with Citi, and won’t allow Citigroup to force their deal to go through.
So what can Citigroup get?: Citigroup today was threatening Wells Fargo with “tortious interference,” for trying to break up their deal. Deal mavens will remember as a big threat in the controversial Clear Channel Communications deal earlier this year. And it’s a credible threat; Clear Channel used the same legal threat to get its deal completed. But Citigroup’s specific performance agreement may not be enough to get the deal done. So alleging tortious interference means that Citigroup is “in a good position to get a settlement or bone or ‘go away’ money from Wachovia and Wells Fargo,” according to Nowicki. Sources familiar with the matter said that Citigroup doesn’t plan to push the agreement into court right now; instead, they are hoping that Wells Fargo will just wise up and walk away.
Is this an agreement?: This was our question to Nowicki. Hexion and Huntsman had a full merger all signed up; Citigroup and Wachovia didn’t have a merger agreement but only had a term sheet. Sources familiar with the matter tell Deal Journal that Citigroup and Wachovia were close to finalizing the details of a definitive agreement, and that as recently as last night they were discussing integration details like job cuts and overlap. According to Nowicki, that could be close enough for a court to support a deal. “Prior to the Huntsman decision, I would have said if Citi tried to march Wells Fargo into court on the exclusivity agreement, the jury would have said no. Now, after Hunstman, the jury could say ‘you didn’t even try to comply with an exclusivity agreement.’ as a practical matter, it means that Citigroup is on much better negotiating footing than they may have been two weeks ago,” Nowicki said.
The agreement runs out on Oct. 6, which is Monday. Why didn’t Wachovia and Wells Fargo just wait until then?: The risks were too great, Nowicki pointed out. The stock market swooned 777 points on a bailout bill rejection on Monday; if that happened again today, Wells Fargo could have gotten spooked and pulled its generous $15.4 billion offer for Wachovia.
Doesn’t Citigroup feel betrayed?: It’s fair to say that it does. Sources sympathetic to the bank said that Wachovia was the one that approached Citigroup last week. These people said that the exclusivity agreement was ironclad. It was much stronger, these people said, than the handshake agreement that caused Pennzoil to sue Texaco for $10 billion in a tortious interference case in the 1980s.