A Wachovia shareholder is fighting the bank's planned sale to Wells Fargo, saying Wachovia could have pushed for a better price and that its shareholders won't have a fair say.
Irving Ehrenhaus has filed a class-action lawsuit, which will play out in the N.C. Business Court in Charlotte, complaining that the $15 billion acquisition announced this month is in breach of board members' duty to get the best deal for shareholders.
In the deal, Wachovia granted preferred stock to Wells that represents nearly 40 percent of Wachovia shareholders' voting power. As a result, shareholders are essentially forced to approve the deal, the suit says.
It's the first shareholder suit related to the Wachovia-Wells union. Attorneys and legal experts have said shareholder suits are common in merger cases, as stock owners seek the best deal for their shares.
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While the suit says shareholders are entitled to block the merger – or recover monetary damages if it moves forward – they aren't opposed to a deal with Wells, as long as it's fair, said Carl Stine of Wolf Popper, the N.Y. law firm that filed the suit.
“We would like the price to be better, but even more importantly, the shareholders should have the right to vote on it,” without Wells' influence, he said. “… If it's such a great deal, we don't understand why they're doing this.”
Wells agreed to buy Wachovia Oct. 3 in a deal valued around $15.1 billion, after the Charlotte bank nearly failed and then agreed to sell part to Citigroup for about $2.1 billion. Many shareholders considered the Wells offer superior because it was more lucrative. But Stine said that in light of the new federal bailout package that's providing $150 billion cash infusions to the nation's top banks, Wachovia seemed to be worth even more.
In the lawsuit, shareholders argue Wachovia's board had a duty to negotiate for a better price, even after it signed the agreement with Wells. In addition, Wachovia “locked up the vote in favor of the merger” by granting the preferred stock to Wells, the suit says.
That preferred stock also precludes a higher bidder from making an offer, Stine said.
Wachovia disagrees. “We believe the complaint is without merit, and we intend to defend the case vigorously,” bank spokeswoman Christy Phillips-Brown said.
Stine said his clients hope to convince Wells to agree not to participate in a shareholder vote – or have business court Judge Albert Diaz order that the provision is illegal, blocking the vote unless Wells gives up its say. A shareholder vote date has not been set.
Wolf Popper has asked the court for expedited treatment and hopes to have a hearing before the deal closes at the end of the year.
Citigroup launched a court battle to block the deal earlier this month but dropped the fight soon after, allowing the merger to move forward. Citi is still hoping to recover monetary damages.