Wachovia Fight Ends With the Right Winner

Wachovia (WB) has probably gotten its best possible outcome now that Citigroup (C) has decided to walk away from its bid and let Wells Fargo (WFC) go through with its merger.

Wells Fargo's $15 billion proposal, announced a week ago, is clearly the better deal for Wachovia shareholders, employees and U.S. taxpayers, but Citi's planned legal action has put somewhat of a damper on the fate of the troubled North Carolina bank.

But in the end, even with Wells Fargo's unorthodox counteroffer, the best bank for the transaction won out. (For more on this, see Jilted Citi Needs to Move On.)

"We like this deal. We believe it makes greater sense from a strategic standpoint and pricing standpoint," writes Christopher Mutascio, an analyst at Stifel Nicolaus. "It provides Wells Fargo with the opportunity to become a national banking franchise at a much lower cost (and in a more timely manner) than cobbling several one-off transactions together."

Citi said on late Thursday that it was breaking off negotiations with Wells Fargo to come to a compromise regarding the ownership of Wachovia. But the company said it was still proceeding with a lawsuit against Wachovia and Wells Fargo seeking "compensatory and punitive damages for bad faith breach of contract and tortious interference" in the $60 billion lawsuit it filed Monday.

Citi, however, said it would not seek to block the deal between Wachovia and Wells after failing to come to an agreement after days of negotiations. Citi cited "dramatic differences" in the views over the transaction's structure and the risks involved. The dueling banks had initially agreed to halt litigation related to the competing deals through 8 a.m. on Friday.