Wells to Buy Wachovia; Citi Threatens Suit

Updated from 9:47 a.m. EDT

Wells Fargo (WFC Quote) said Friday it has reached a definitive agreement to acquire Wachovia (WB Quote) for $15.1 billion, but Citigroup (C Quote), was threatening legal action to preserve a federally backed deal it had reached Monday .

In a statement Friday, Wells Fargo and Wachovia said the transaction requires no financial assistance from the Federal Deposit Insurance Corp. or any other government agency.

Just days ago, Citigroup reached an arrangement to purchase all of the banking subsidiaries of Wachovia for around $2.2 billion, but the deal was being done with aid from the FDIC.

Wachovia didn't offer a great deal of comment on the pact with Citi, which for now at least appears to be dead. It did say it "had been negotiating with Citigroup to complete a transaction supervised by the FDIC that included assistance from the government."

From the outset, the FDIC had stressed that Wachovia didn't fail. Failures of IndyMac and Washington Mutual in recent months led to government seizures and subsequent sales of the bulk of their banking operations, but in the case of Wachovia, the government was described more as a facilitator. The board of Wachovia approved Wells Fargo's offer Thursday night.

Citi said in a statement that the Wells Fargo deal constituted a "clear breach of an exclusivity agreement" Wachovia had entered with Citi and demanded a halt to the new transaction.

"Citi was negotiating in good faith and nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction that was announced on Monday," the bank said in a statement. "The value of the Citi agreement to Wachovia shareholders was substantially in excess of Wachovia's closing price on Thursday, Oct. 2. Citi has also been providing liquidity support to Wachovia Bank since Monday's announcement."