Citi calls Wells’ Wachovia bid illegal

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Oct 4 : Citigroup Inc, hobbled by $61 billion of subprime-related losses, now faces its biggest takeover battle in a fight with Wells Fargo & Co for control of Wachovia Corp.

Citigroup fell as much as 21% on Friday in New York trading after Wells Fargo, the biggest US bank on the West Coast, agreed to acquire all of Charlotte, North Carolina-based Wachovia for $15.1 billion. The bid trumped Citigroup’s government-backed offer of $2.16 billion for Wachovia’s banking operations.

“The taxpayer doesn’t pay a penny’’ for the Wells Fargo deal, Wells Chairman Richard Kovacevich, 64, said in an interview. His company’s bid is superior to Citigroup’s also because it’s a higher price and the combining banks “share similar cultures and values.’’

Vikram Pandit, Citigroup’s CEO, is counting on the Wachovia purchase to help rebuild after three quarters of losses totaling more than $17 billion. The bank’s market value has dropped 38% this year to about $100 billion, leaving it below Wells Fargo. If Wells Fargo winds up with Wachovia, it would creep up on its New York rival with deposits of $787 billion, compared with Citigroup’s $826 billion.

Pandit insisted Citigroup will prevail, citing an exclusive agreement signed by Wachovia. Kovacevich told investors during a conference call the deal with Wachovia is “solid’’.

Citigroup dropped 18% to $18.35 on Friday in New York Stock Exchange composite trading, after having its biggest share decline in about 20 years. Wachovia rose 59% to $6.21. Wells Fargo declined 1.7% to $34.56.

Citigroup demanded Wells Fargo abandon the takeover. Buying Wachovia would give Citigroup the third-biggest US bank network and cement its status as the nation’s largest lender by assets.

“Any such agreement between Wachovia and Wells Fargo is illegal,’’ Pandit, 51, said in an e-mail. “We continue to vigorously pursue Citigroup’s interest and rights in completing this transaction.’’

Citigroup may take legal action to block the deal, or may increase its offer, said a person with knowledge of the deliberations.

“I’m still not convinced that Citigroup can force this sale to happen,’’ said Elizabeth Nowicki, a professor at Tulane University Law School in New Orleans and a former M&A lawyer at Sullivan & Cromwell. “Citigroup may be facing the chance to get themselves a small settlement, and that’s a nice shot in the arm for a company that’s struggling.’’