Wells bids $16 bln for Wachovia; scuffles with Citi

By Dan Wilchins

NEW YORK (Reuters) - Wells Fargo & Co (WFC.N) agreed to buy Wachovia Corp WB.N for about $16 billion, catapulting it into the top ranks of U.S. consumer banking and upstaging a government-backed Citigroup Inc bid for the troubled bank.

Citigroup (C.N) demanded Wells Fargo (WFC.N) drop its surprise bid, which comes after Wachovia preliminarily agreed to sell its banking assets to Citi for $2.2 billion, with partial government guarantees on $312 billion of Wachovia's mortgages. Citi said Wachovia had agreed not to negotiate with other parties.

Regulators said on Friday they had not looked at the Wells Fargo bid, which would not require any government backing.

The lack of government support may make the Wells Fargo bid more attractive for regulators, analysts speculated, and some even argued that Citi ought to walk away.

"It's the right thing for the country for Citi to back off," Bill Hackney, managing partner at Atlantic Capital Management, which has $8 billion under management and owns Wells Fargo shares.

Wells shares closed down about 1.7 percent, after rising earlier in the day, while Wachovia shares closed up nearly 59 percent. Citigroup shares finished down about 18.4 percent.

But lawyers said Citigroup has a real case, including an exclusivity agreement and the fact that it has been providing support to Wachovia this week.

"Those are clearly strong facts on Citi's side," said Morton Pierce, chairman of the mergers and acquisition group at law firm Dewey & LeBoeuf. Dewey & LeBoeuf is not representing any of the parties in the transaction.