By Lisa Kerner
Charlotte, N.C., Sept. 29 - Citigroup Inc. agreed in principle to acquire Wachovia Corp.'s retail bank, corporate and investment bank and wealth management businesses.
Under the proposed agreement, Citi will pay Wachovia approximately $2.16 billion in stock and assume Wachovia's senior and subordinated debt, totaling approximately $53 billion.
The Federal Deposit Insurance Corp. will provide loss protection in connection with approximately $312 billion of mortgage-related and other Wachovia assets.
Citi is responsible for the first $30 billion of losses on this portfolio as well as for the next $12 billion in losses up to a maximum of $4 billion per year for the next three years. The FDIC has agreed to be responsible for any further losses on this portfolio, a Citi news release said.
In addition, Citi agreed to issue to the FDIC preferred stock and warrants with a combined value of approximately $12 billion.
Both financial services companies' boards of directors have approved the agreement, which is expected to close by the end of the year.
Citi said it expects to raise $10 billion in common equity in connection with the deal. It will also reduce its quarterly dividend to $0.16 per share, effective immediately.
Wachovia said it will remain a public company and expects to have adequate capital to support its remaining businesses.
Currently there are no changes to Wachovia's board of directors, and two Wachovia directors will join Citi's board.
Wachovia's headquarters location will remain in Charlotte, N.C.
Citi will maintain headquarters in Charlotte for the retail bank and in New York for the investment bank. Wachovia Securities will continue to be based in St. Louis.
The deal is expected to be fully accretive to Citi's earnings in 2010.
"Our core businesses continue to perform well but amid uncertain markets and a fast-changing industry landscape, we found in Citi a strong partner to preserve the stability and quality of our banking franchise," Wachovia chief executive officer Robert Steel said in a company news release.
Once the transaction is complete, Citi will have approximately 4,300 branches in the United States and another 3,300 or so branches throughout the world.
Citi, based in New York, expects to close less than 5% of the combined branches due to the little overlap between the two companies' footprints. Integration of the companies' retail banking operations should be complete by the end of 2010.
Wachovia's investment bankers were Goldman Sachs, Perella Weinberg Partners and Wachovia Securities, and its legal advisers are Sullivan & Cromwell and Simpson Thacher & Bartlett.
| Acquirer: | Citigroup Inc.
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| Target: | Wachovia Corp.'s banking operations
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| Announcement date: | Sept. 29
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| Transaction total: | $2.16 billion
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| Expected closing: | Dec. 31
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| Stock price for acquirer: | NYSE: C: $20.15 on Sept. 26
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| Stock price for target: | NYSE: WB: $10.00 on Sept. 26
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