Though Wells Fargo's $7 a share offer for Wachovia likely would have prompted scorn even a month ago, investors greeted the new coupling with guarded optimism Friday – a far kinder reception than Citigroup received after making a much lower offer just four days earlier.
Citi offered $2.16 billion in stock for most of Wachovia, including its retail banking operations, and would have left shareholders with a stake in only the remaining, much smaller Wachovia. Wells, however, has offered to buy all of the Charlotte bank for $15 billion, or about $7 a share.
Jodie Strait of Huntersville, a technology project manager who owns 1,000 Wachovia shares and also worked as a contractor for the company until about five months ago, said she bawled when she heard about the Citi deal. Not so with Wells, which she views as an ideal partner that will better help preserve Wachovia's history and customer service.
“The two footprints match really well, and I think there's more of an opportunity for my friends that are still over there, and I think it's better for Charlotte,” Strait said. “I'm just glad that Wachovia gets to stay whole, even though it's merging with another company.”
Current Wachovia stockholders, 73 percent of whom are large institutions, would receive about 0.2 shares of Wells for each Wachovia share they own. Because shares of Wells are trading at about $35, that works out to about $7 a share. And unlike Wachovia, Wells has not cut its dividend this year; its most recent payment was 34 cents a share.
The merger merry-go-round sent Wachovia shares higher, to a close of $6.21 Friday, up $2.30, or 59 percent, from the previous day, and up even more from a close of $1.84 on Monday.
$7 better than $1
For investors who said they believed the company was worth more than Citi's offer, the news provided a sense of vindication.
“They're buying all of Wachovia at $7 a share, which is a heck of a lot better than a dollar,” said Mark Beck of Charlotte, a shareholder whose Web site opposing the Citi deal, www.wachoviavoteno .com, received 103,000 hits since launching late Tuesday. “And Wachovia's going to end up with an infusion of new leaders from a bank that is considered very well run.”
Still, Beck said he is waiting to read documents to learn more about the deal. The company, he said, is probably still worth more than Wells' offer, but he was unsure whether stockholders could realistically expect to get more. Plus, he noted, some stability would help the company at this point, given the events of this week.
Others still held out some hope that Wachovia could stand alone.
Jack Bray, 50, an engineer and resident of Maryville, Tenn., said his family's Wachovia shares date back to the 1930s in North Carolina. They've held on to the shares since, reinvesting the dividends, and he even now keeps some stock certificates under his bed.
The stock, he said, was good for a long time, and he now holds about 4,000 shares. He plans on keeping them, but wishes the federal economic bailout plan approved Friday could be used to help Wachovia remain an independent company.
“I would rather see the company survive and keep jobs and prestige in North Carolina,” he said. “But if it's too late for that, it sounds like Wells Fargo is at least more interested in something along those lines than Citigroup is.”
The Citi deal, he said, “smelled too much to me like somebody coming in fast and trying to do a fire sale grab.”
But even if the Wells offer is an improvement, others say they believe they still aren't getting their money's worth.
Wells still gets a bargain
The pieces of Wachovia that would have been left after the Citi deal could very well have been worth $7 a share on their own, said longtime shareholder Mark Newell of Kings Mountain. Indeed, analysts concurred with that view this week.
Now, Newell said, Wells could get the entire company for that price.
“I still don't think it's high enough, but I'm going to sit back on my heels and wait,” he said. “It's just, you get up in the morning and you think, ‘What's going to happen?' Right now, I would dare not make a move.”
As an investor, he said, he's never seen five days like this in his life.
“It looks like there's going to be a bidding war,” he said. “I don't think it's over yet.”