Wachovia-Citigroup letter: Non-binding agreement to agree

by Kurt Schulzke on October 5, 2008

Citigroup’s “agreement” with Wachovia appears to be a bust. If the $2.1 billion deal is documented by nothing more than the letter posted at Clusterstock (key excerpt below), Citigroup shareholders should get set for disappointment: the “non-binding” term sheet apparently involved a $42 billion contribution by the federal government. Citi’s reported $60 billion lawsuit against Wells Fargo suggests Wachovia was worth far more than Citi was letting on.

Whatever Wachovia’s true value, Citigroup appears to have no legitimate claim to it. What I see in this letter is an agreement to keep talking, exclusively, until October 6. After that, all bets are off. There’s nothing in the exclusivity “agreement” that binds Wachovia to conclude what the “agreement” explicitly calls a “proposed transaction.”

It’s a classic, unenforceable agreement to agree and — if Citi cannot produce more evidence of a binding deal — it’s a cautionary tale to owners, managers, buyers and sellers of businesses of all sizes. Binding agreements must do more than bind the parties to talk with each other.