Shareholder suit filed to block Wachovia sale
A Wachovia Corp. investor wants a judge to block the company’s sale to Wells Fargo & Co., contending the proposed $15 billion price is too low and the shareholder vote will be unfair.
The suit contends the bank will force the sale without true approval from shareholders. It says Wachovia “essentially disenfranchised the voters … and locked up the vote in favor of the merger” by giving Wells preferred stock representing 39.9% of Wachovia voting shares as part of the merger agreement.
“If this is such a good deal, we don’t understand why they are doing that,” said Carl Stine, a partner with Wolf Popper, the New York law firm that filed the suit. “Why not have a free and open vote?”
Christy Phillips-Brown, a spokeswoman for Wachovia, said the suit is “without merit and we intend to defend the case vigorously.”
The suit is filed as a class action. The only named shareholder is Irving Ehrenhaus, who would be the lead plaintiff.
It asks a judge in North Carolina business court to block the deal, issuing both a temporary and permanent injunction. No hearings have yet been set, but Stine said his group hopes to have hearings before the deal closes at the end of the year.
If the deal is closed before the case is heard, the suit asks the judge to undo the acquisition or award unpecified monetary damages.
The suit accuses the Wachovia board of breach of fiduciary duty in the deal. It accuses Wells of aiding and abetting that breach.
San Francisco-based Wells (NYSE: WFC) agreed Oct. 3 to buy Wachovia in a deal initially valued at $15.1 billion. This was while Wachovia’s future hung in the balance. The bank faced failure on Sept. 29 and was rescued only by a deal brokered by federal regulators to sell its banking operations to New York-based Citigroup Inc. (NYSE: C) for $2.1 billion payday advance lender.
That deal, announced Sept. 29, would have left a portion of Wachovia — basically Wachovia Securities and some asset-management operations — surviving as an independent company.
Wells made a higher offer Oct. 2, and the board accepted it shortly after midnight Oct. 3. Citigroup initially challenged that deal but has dropped efforts to block it. Instead Citigroup intends to seek up to $60 billion in damages from Wells and Wachovia over the deal gone sour.
Wachovia was on the verge of failure after a proposed bailout of the banking system foundered in the U.S. Congress. Before that failure, the suit says, Charlotte, N.C.-based Wachovia (NYSE: WB) was worth about $10 a share.
With the bank facing shutdown or a bargain-basement deal with Citigroup, Stine says, the roughly $7 a share Wells offered might be appropriate. But after the bailout passed, Wachovia was worth more than that. The board, he says, had a duty to renegotiate the price.
Wells, he said, had “a gun to Wachovia’s head” when the deal was made. And it demanded Wachovia enter into an immediate exchange of stock, giving the preferred shares to Wells.
Stine argues that all but assures the deal will be approved. Management and the board of Wachovia own about 2.5 percent of all shares, so Wells starts with a 41 percent stake in the deal, he says.
But granting that large a share of votes to Wells also effectively precludes any other bidder from coming in.
Wolf Popper, which has a national reputation in class-action suits, has asked Judge Albert Diaz in the business court for expedited treatment to allow the argument for an injunction to be heard as quickly as possible.
The suit was filed a little more than a week ago in Mecklenburg Superior Court.