Too Big to Fail - Andrew Ross Sorkin [272]
“Okay,” he sighed. “Why don’t you work something up? Let’s see what this would look like.”
As the sky grew dark, Bob Steel climbed the steps of Wachovia’s corporate jet at Teterboro Airport in New Jersey to head back to Charlotte. He had spent virtually the entire week in back-to-back meetings with Citigroup to coordinate the details of the merger, which they planned to herald in a full-page newspaper ad on Friday, declaring: “Citibank is honored to enter into a partnership with Wachovia…the perfect partner for Citibank.” While he was frustrated with the paltry final price of the deal, he was proud to have at least saved the firm from failure, and he knew that he had explored every possible option in trying to do so.
The government-orchestrated deal had been announced on Monday morning, but it still needed to be formally “papered over,” and in the meantime, Citigroup was keeping Wachovia alive by loaning it $4.9 billion. A number of details were still to be worked out, but they expected to have a signed agreement within the next day. Steel had spent that afternoon at Citigroup discussing the postmerger fates of the most senior Wachovia executives. Before he left he had shaken hands with Pandit. “Looks like we’re done,” Pandit had said gladly.
As Steel’s plane taxied down the runway his BlackBerry rang. It was Sheila Bair. “Hi, have you heard from Dick Kovacevich?”
“No, not since Monday morning,” a puzzled Steel answered; the Wells Fargo CEO had called then to offer his congratulations on the deal with Citi. “Why?”
“I understand that he’s going to be making a proposal for $7 in stock for the entire company—no government assistance.”
“Wow,” Steel replied, quickly trying to assess the ramifications of what Bair had just told him. Had Wells Fargo just jumped Citigroup’s bid? Was the government, which had blessed the original deal, now reversing itself? “Sheila, I’m about to take off any second,” he apologized. “You should call Jane Sherburne,” he added, referring to Wachovia’s general counsel.
Sometime after 9:00 p.m., just minutes after Steel’s plane landed in Charlotte, Kovacevich phoned with the pitch that Bair had outlined earlier. Having just spoken with Sherburne and Rodgin Cohen, Wachovia’s outside counsel, Steel had been instructed by them not to say anything that would indicate acceptance or rejection of the offer.
“I look forward to seeing the proposal,” Steel told Kovacevich, and a minute later he received an e-mail with a merger agreement already approved by the Wells board.
It was as if Christmas had come early. Steel couldn’t believe his luck: A deal at $7 a share, up form $1 a share—and without government assistance.
He called his office and scheduled an emergency board meeting by telephone for 11:00 p.m. Before the board call, Steel had a strategy discussion with Cohen. While he owed it to Wachovia shareholders to take the highest bid, he also recognized that he already had a deal with Citigroup—a deal that had kept the firm from failing. The term sheet that Wachovia had signed with Citigroup included an exclusivity provision that prevented the firm from accepting another offer.
“I’m going to be sued by somebody,” Steel told Cohen.
“Pick your poison,” Cohen replied drily.
To both of them, however, it was clear that there really was no choice: The board had to accept the higher bid and take its chances with a suit from Citigroup. Steel and Cohen realized that Wells Fargo had made its bid because of a little-noticed change in the tax law that had occurred on Tuesday, the day after the Citigroup deal. The new provision would allow Wells Fargo to use all of Wachovia’s write-downs as a deduction against its own income, thus enabling the combined bank to