North Carolina Business Litigation Report

Preliminary Injunction Hearing In Wachovia-Wells Fargo Merger Lawsuit

There's only one thing for sure after today's preliminary injunction hearing in the lawsuit over the merger between Wachovia and Wells Fargo.  And that is that Judge Diaz displayed remarkable patience after more than three hours of argument from five different lawyers.

My favorite sound bites from the very long hearing (which are not verbatim, but based on my notes and recollection), are as follows:

From Plaintiff's Counsel

Over 42% of the shares are locked up in favor of the merger.  That means that 86.2% have to vote "no," or not vote, to defeat the merger.  It's like having a supermajority requirement to vote down a merger.

 If this deal is so good that it's a no-brainer, let the shareholders vote.  Why do you need draconian deal protection measures if that is the case?

The Share Exchange and the lack of fiduciary out are a toxic combination.

The only terrible thing that will happen if our motion is granted is that Wells Fargo might walk away.  But Wells Fargo never says that they will.  They say they might walk.  Wells Fargo is not going to walk from this deal. 

A bond of $5,000 would be about right.

From Defendants' Lawyers

The companies whose boards did not act quickly enough in this financial crisis -- like Lehman and Washington Mutual -- were wiped out.  The Wachovia board acted quickly. 

The shareholder franchise [to vote to approve a merger] is meaningless if there is no franchise remaining. 

Wachovia could very well be in bankruptcy or receivership if this deal hadn't been approved by the Board.

The Wachovia Board faced a stark choice between illiquidity and receivership, on one hand, and Wells Fargo on the other.

Wachovia did not have other options.  These were the best terms that could be negotiated.

It is wishful thinking that another suitor will appear, or that the government will come along and bail out Wachovia.

Most Humorous Exchange

Judge Diaz: Wells Fargo relies on the IXC case from Delaware, where Vice Chancellor Steele said that if 40% of the vote was locked up, that still wasn't a majority.  It was still possible for the shareholders to reject the transaction.

Plaintiff's Counsel: I'm very familiar with that case, I worked on it.

Judge Diaz: Sounds like you lost.

Plaintiff's counsel made it clear that Plaintiff is not requesting an injunction against the merger.  The relief sought is an invalidation of the Share Exchange which gave Wells Fargo nearly 40% of the vote, and a requirement that Wachovia's Board negotiate a broader fiduciary out from the Merger Agreement.  Plaintiff wants a vote on the merger, he just doesn't want Wells Fargo to be able to vote its shares.

At the end of the hearing, Judge Diaz said that he would take the case under advisement.  He did not say when he would rule.  The ruling will certainly be before the shareholders meeting, which has been set for December 23rd. 

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Mack Sperling
Brooks Pierce, LLP
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