Under Wells Fargo's deal, Wachovia shareholders would receive 0.1991 shares of Wells Fargo for every share of Wachovia stock they own, valuing Wachovia at about $7 per share. This is a nearly 80 percent premium over the stock's Thursday closing price of $3.91. Shares closed at $10 last Friday, the last trading session before the deal with Citigroup was announced.
Wachovia's shares rose $2.71, or 69.4 percent, to $6.62 in afternoon trading. Wells shares gained $2.15, or 6.1 percent, to $37.31, while Citigroup shares fell $2, or 8.9 percent, to $20.50.
The fight for Wachovia comes in a turbulent time for banks and financial firms as they grapple with the ongoing credit crisis, which led to the recent bankruptcy of Lehman Brothers Holdings Inc. and the failure of Washington Mutual Inc.
Wachovia's board approved Wells Fargo's offer late Thursday. The deal is still subject to Wachovia shareholder and other regulatory approvals. Wells Fargo said it expects the deal to close by year-end.
"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," Robert Steel, Wachovia's president and chief executive, said in a statement.
Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday the agency "stands behind its previously announced agreement with Citigroup."
The FDIC will review all proposals and work with the regulators of Wachovia, Citigroup and Wells Fargo "to pursue a resolution that serves the public interest," Bair said.
Bair noted in her statement that "under either proposal, all banking customers of the merged institutions would be fully covered with no disruptions in service."
The Federal Reserve, which has regulatory oversight of the three big banks, said it hasn't had time to review the proposed sale of Wachovia to Wells Fargo but will work to ensure that all creditors and depositors of Wachovia are protected.
In a statement, the Fed said while it and the Treasury Department's Office of the Comptroller of the Currency had conducted an extensive review of the Wachovia-Citigroup deal, it had not yet had time to review the new offer from Wells Fargo.
The Fed said regulators will be working with Wachovia and Wells Fargo "to achieve an outcome that protects all Wachovia creditors, including depositors, insured and uninsured, and promotes market stability."
In connection with the agreement, Wachovia is issuing Wells Fargo preferred stock representing 39.9 percent of Wachovia's voting power. This increases the probability that the transaction gets consummated quickly and that Wells Fargo will receive a positive shareholder vote, Wells Fargo said.
Wells Fargo expects to record merger and integration charges of about $10 billion. The bank expects cost-savings of about $5 billion annually, with the majority of cost savings achievable by the end of 2010. No government assistance is part of the deal terms.
Wells Fargo has estimated that the lifetime losses on Wachovia's loan portfolio will total $74 billion. The bank said it expects to incur the majority of credit costs over the next two years, and for the transaction to add meaningfully to earnings after that.
In its planned takeover of Wachovia, Citigroup said it would assume $53 billion worth of debt and agreed to absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio. The FDIC agreed to cover any remaining losses in exchange for $12 billion in Citigroup preferred stock and warrants.