The exclusivity agreement between Wachovia and CItigroup was likely negotiated by Davis Polk & Wardwell and Sullivan & Cromwell, the two highly respected white shoe law firms that took the lead roles in the deal. Sullivan advised Wachovia on the deal, while Davis Polk advised Citi. Now that it seems Wachovia believed it could violate the exclusivity with impunity, we have to wonder if Davis Polk got simply out negotiated by Sullivan.
Of course, it’s possible that both sides knew they were entering into a weak exclusivity agreement. Deals are sometimes cut with weak exclusivity if it is feared that shareholders might sue, claiming that the deal locked the company into a deal before a shareholder vote. But given reports that Citi was furious about the deal with Wells Fargo, it looks like Davis Polk might have dropped the ball.
Of course, if it turns out that the clause is enforceable in a way to bar a deal with Wells and force Wachovia into the arms of Citi–a conclusion we think is unlikely–Davis Polk may have the last laugh. CNBC is reporting that Citi is planning on suing.
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