Oct. 3 (Bloomberg) -- Citigroup Inc. demanded that Wells Fargo & Co. and Wachovia Corp. terminate a $15.1 billion takeover agreement announced today, saying it breached an exclusive deal the New York-based company reached earlier this week.

Citigroup, led by Chief Executive Officer Vikram Pandit, dropped as much as 15 percent in New York trading after San Francisco-based Wells Fargo said it would buy Wachovia in an all- stock transaction. Citigroup announced a $2.16 billion offer for parts of the company four days ago.

``Citi has substantial legal rights regarding Wachovia and this transaction,'' the New York-based company said in a statement. ``Wachovia's agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia.''

The Citigroup deal, which included assistance from the Federal Deposit Insurance Corp., would have pushed the New York- based lender to third place among U.S. bank networks, behind Bank of America Corp. and JPMorgan Chase & Co. The proposal didn't include Wachovia's brokerage and mutual-fund businesses.

``Citigroup loses an attractive, accretive deal, complete with government assistance,'' David Trone, an analyst with Fox- Pitt Kelton Cochran Caronia Waller in New York, wrote in a note today. ``The deal was struck at the 11th hour and clearly had not been formally completed.''

Shares of Citigroup fell $2.50 to $20 in composite trading on the New York Stock Exchange at 10:24 a.m. The stock had gained 12 percent since the Wachovia deal was announced on Sept. 29.

FDIC Review

``The FDIC stands behind its previously announced agreement with Citigroup,'' FDIC Chairman Sheila Bair said in a statement today. ``The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.''

U.S. bank regulators said they haven't evaluated Wells Fargo's deal.

``We have not yet reviewed the new Wells Fargo proposal and the issues that it raises,'' the Federal Reserve and Office of the Comptroller of the Currency said today in a statement in Washington. ``The regulators will be working with the parties to achieve an outcome that protects all Wachovia creditors, including depositors, insured and uninsured, and promotes market stability.''

Citigroup's proposed deal with Wachovia ``has undergone extensive review'' by the Fed and OCC, the statement said.

Wachovia's Value

The Wells Fargo transaction values Charlotte, North Carolina-based Wachovia, led by CEO Robert K. Steel, at $7 a share, the companies said in a joint statement today. Wachovia traded at $6.80, up 74 percent from yesterday. Wells Fargo rose 8 percent to $38.16.

``It provides superior value compared to the previous offer to acquire only the banking operations of the company,'' Richard Kovacevich, 64, chairman of San Francisco-based Wells Fargo, said in a statement. ``Wachovia shareholders will have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world's great financial services companies.''

Wachovia shareholders get 0.1991 shares of Wells Fargo common stock for each share they own. Wells Fargo expects charges related to the acquisition of about $10 billion, and the company said it will issue as much as $20 billion of new securities, mostly common stock.

Wells Fargo said it will acquire all of Wachovia's businesses, preferred equity and banking deposits. Chief Financial Officer Howard Atkins said in the statement that the acquisition will add to earnings per share by the third year after completion and should produce an internal rate of return of at least 15 percent.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: October 3, 2008 10:44 EDT