Wells Fargo (WFC) Buys Wachovia (WB)

Source: http://feeds.feedburner.com/~r/ContrarianProfits/~3/410248885/5913
Posted on Friday, October 3rd, 2008 | In Market Commentary

Contributed by: Andrew Snyder (http://www.contrarianprofits.com) -

There is something exciting and fascinating about this market. When the Street thinks it finally has things figured out, something goes and throws a really big wrench into the works.

Take Wachovia (NYSE:WB) for instance. Just a few hours ago, we all thought Citigroup (NYSE:C) was going to take ownership of the majority of the failing bank’s assets. It was a deal propped up by the Federal Reserve, but one Wall Street embraced and even welcomed.

It is not going to happen.

Instead, Wells Fargo (NYSE:WFC), one of the original Wachovia suitors, is stepping in and taking over the acquisition. Citigroup appears to be totally out of the equation, getting Bernanke and the Fed off the hook.

Move over, coming through

Just a few days ago, Wells Fargo decided to pass on Wachovia, telling us it was not happy with the company’s books and mortgage debts. Now, it is forcing a major competitor in a ditch trying to get its hands on the company at a substantial premium. Wells Fargo will pay $7 per share, an 80% premium over yesterday’s trading price.

This news proves Warren Buffett is on the ultimate value-hunting spree. As a major shareholder in Wells Fargo, you know he had something to do with this deal. Buffett and his Berkshire Hathaway (NYSE:BRK-B) have spent tens of billions over the last week or so, scooping up stakes of some of the nation’s largest and strongest companies at hugely discounted prices.

If you were one of the brave investors willing to buy shares of Wachovia at their lows this week around $0.79, your wisdom is evident. With the news from Wells Fargo this morning, shares of Wachovia are soaring, trading in the pre-market hours for over $6.30.

As this market settles, look for more and more surprise deals like this. Strong companies with large cash reserves are either going to buy their competitors or crush them. It will be very interesting and very profitable.