The Wall Street Journal is reporting this evening that Citigroup, because of what I suspect was its own negotiating faux pas, is now throwing in the towel on talks with Wells Fargo over the purchase of at least part of Wachovia Bank:
Citi said: “Without our willingness to engage in this transaction, hundreds of billions of dollars of value would have been seriously threatened. We stood by while others walked away. Now, our shareholders have been unjustly and illegally deprived of the opportunity the transaction created.”
Citi believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisors and others for breach of contract and for tortious interference with contract. Citigroup plans to pursue these damage claims vigorously on behalf of its shareholders. However, Citigroup has decided not to ask that the Wells Fargo-Wachovia merger be enjoined.
While Citigroup insists that it has “strong legal claims,” the fact that it is unwilling to file for an injunction against the Wells Fargo deal suggests either that Citi’s claims are not as strong as it says or Citi is no longer as interested — for a variety of possible reasons — in closing a deal.
I’ve maintained from the beginning that Citi’s documentation does not show an enforceable agreement. Perhaps Citi has some evidence of an oral pact, but publicly available information suggests that Citi’s negotiators didn’t do a very effective job of getting Wachovia’s binding commitment. This is a common failure in business negotiation. If you want to close, you have to get commitment.