Steven Davidoff has the analysis here, but it seems he hadn't seen the Wachovia-Citigroup exclusivity agreement, which is here. The agreement doesn't contain a fiduciary out (a provision that lets the board do with a different bidder if it feels that its fiduciary duties require it to do so). Is Wells Fargo banking on North Carolina corporate law giving it a way out of the contract?Update: I've clarified that the agreement mentioned above is the Wachovia/Citi exclusivity agreement. Here's a link to a great interview with Elizabeth Nowicki on the subject.
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1. Posted by Vania Shaw on October 3, 2008 @ 17:36 | Permalink
Citigroup should not be the least bit unhappy with what Wachovia and Wells Fargo have done.
Citigroup has a fabulous tort claim against Wells Fargo for interference with contract and interference with prospective economic advantage. Their lawyers can file a complaint against both Wachovia and Wells Fargo in a state or Federal court sitting in New York City.
The case cannot be moved out of that court (except by way of bankruptcy of Wachovia or Wells Fargo) because the exclusivity contract contained a specific waiver by Wachovia of any right to move it and because Wells Fargo does business in New York. Wells Fargo and Wachovia will have to defend their conduct in front of a jury of New York residents. While New Yorkers hate banks, they hate crackers and Californians even more.
Neither Wachovia or Wells Fargo can raise the issue of any breach of fiduciary duty by Wachovia under North Carolina law for 3 reasons: (1) A tortfeasor cannot raise fiduciary duty as a defense for his own wrongful conduct towards a third party; (2) A third party tortfeasor cannot raise another party's breach of fiduciary duty as a defense to the third party tortfeasor's own wrongful conduct; and (3) There was no fiduciary duty breach at the time of the tortious conduct by Wells Fargo and Wachovia.
Fiduciary duty is a red herring raised by moronic business lawyers who have never seen the inside of a court room.
The measure of Citigroup's tort damages is their economic loss. They lost a cheap purchase price for Wachovia's branch banking system. Citigroup will be able to use Wells Fargo's own accounting records to show the book value of the branches to Wells Fargo, based on what Wells Fargo paid for them. That will be the value of the branches the jury considers. The jury will take that number and deduct the $1.2 Billion Citigroup was supposed to pay. On economic loss from the tort alone Wells Fargo is looking at having to pay $2 Billion to $2.5 Billion in damages.
At time of trial, Citigroup will be able to show that Wells Fargo's employees, including former senior Wachovia employees, interfered with and breached the Citigroup-Wachovia contract for the economic profit of the senior officer employees (who are Wachovia shareholders) and for the economic profit of Wachovia...which by then will have been merged into Wells Fargo which will be liable for Wachovia's torts. Thus, the tests for punitive damges against Wells Fargo and its principal officers and shareholders will have been met and prospect for a punitive damage award over and above the economic damages is very great.
Since Warren Buffett's company is the largest shareholder in Wells Fargo, there is even some chance that the Oracle of Omaha will be forced to testify for days and days in depositions, as well as at trial if Citigroup's lawyers find any evidence that Buffett was personally involved in the decision to prematurely cut in on Citigroup's deal. A New York jury is going to have a good time taking money out of the pocket of a billionaire hayseed's company.
The plaintiffs lawyers will probably try to plead and prove a tort claim, with punitive damages, against Buffett personally.
The plaintiffs' lawyers for Citigroup are licking their chops. This is going to be the best tort claim ever.
2. Posted by Jake on October 3, 2008 @ 20:04 | Permalink
"The best tort claim ever."
On what standard?
Enriching tort lawyers?
Advancing the regrettable conflation of tort and contract law by further enthroning "interference with contract" claims?
Providing a playground for those members of the bar who specialize in abusive discovery?
Or endorsing wildly speculative damages calculations?
3. Posted by Elizabeth Nowicki on October 5, 2008 @ 17:25 | Permalink
Usha, your second link is not to the merger agreement. That's just the Exclusivity Agreement. I do not believe Citigroup/Wachovia ever released a "term sheet" (which was the best they had - the negotiations had not advanced to the stage that they would have a merger agreement).