Battle for Wachovia Intensifies

NEW YORK (CNNMoney.com) -- The fight for who would win Wachovia - Citigroup or Wells Fargo - heated up Sunday night.

New York State Supreme Court Justice Charles Ramos had issued an order late Saturday that temporarily blocked the merger of Wachovia with Wells Fargo.

Wachovia responded Sunday with lawsuits of its own. In a Sunday night ruling, the Appellate Division of State Supreme Court threw out the order by Ramos, the Associated Press reported. Citigroup said it would appeal the decision.

In a deal struck last Monday with the assistance of the Federal Deposit Insurance Corporation (FDIC), Citigroup had offered to take over Wachovia's banking operations for $2.2 billion. The deal did not include Wachovia's asset-management or retail-brokerage units.

Four days later, Wells Fargo said it was buying all of Wachovia for approximately $15.1 billion in stock.

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company," Wachovia CEO Robert Steel said in a statement on Friday.

The battle also has implications for taxpayers.

The Citigroup offer had come with a backstop from the FDIC, which would cover any losses on Wachovia's $300 billion loan portfolio beyond the first $42 billion. The Wells offer does not ask for FDIC assistance.

In a statement on Sunday, Wachovia said the company believes its agreement with Wells Fargo is "proper, valid and ... in the best interest of shareholders, employees as well as the American taxpayers." Citigroup is free to make a better offer to Wachovia under that agreement, the statement said.

The fight was also waged in federal court, where Wachovia asked U.S. District Judge John Koeltl to declare invalid part of the Citigroup deal that would have restricted Wachovia from considering competing bids. Koeltl scheduled another hearing for Tuesday so Citigroup could respond.

It was clear from documents filed in federal court Sunday that Wachovia was in considerable trouble when it agreed to the deal, the AP reported. Wachovia disclosed that it agreed to the deal "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.

As of Friday, Citigroup still had support of industry regulators. "The FDIC stands behind its previously announced agreement with Citigroup," Federal Deposit Insurance Corporation Chairman Sheila Bair said in a statement, adding that it would pursue a resolution with all three companies. An FDIC spokesman did not immediately return calls for comment on Sunday, the AP said.

Citigroup (C, Fortune 500) had been pressing Wachovia (WB, Fortune 500) and Wells Fargo (WFC, Fortune 500) to abandon their merger plans, arguing that it had entered into an exclusivity agreement with Wachovia.

A copy of the exclusivity agreement between Citigroup and Wachovia obtained by CNNMoney.com reveals that Wachovia had agreed not to seek out another bidder, nor to provide information or enter talks that might facilitate a rival bid.

Wells Fargo, in a statement Sunday, said it has "a firm, binding merger agreement," the AP reported.

Why they want Wachovia

A Wells Fargo victory would transform the San Francisco-based bank, whose operations and branches are largely located in the Midwest and on the West Coast, into a dominant presence along the East Coast and in the Southeast. Wachovia is based in Charlotte, N.C.

That would put Wells Fargo squarely in competition with the likes of JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500).

Should Wells Fargo ultimately prevail, it will control about $800 billion in deposits and have nearly 11,000 banking locations.

"This would represent a major strategic win for Wells Fargo," said David Hendler, analyst with CreditSights, in a report.

If Citigroup wins, it would represent a huge step forward for the company's retail banking aspirations, whose footprint has lagged many of its biggest rivals.

Investors cheered Citigroup's decision last week to buy Wachovia's banking assets. But some observers had wondered whether Citigroup could pull off the deal since it is in the process of a major restructuring after posting close to $18 billion in losses over the past three quarters.

The tie-up, however, comes at a cost for Wells Fargo. The company said it expected to incur about $10 billion in merger related costs. It said it would also record Wachovia's impaired assets at fair value, which could bring further writedowns.

Howard Atkins, Wells Fargo's chief financial officer, said that pre-tax losses and market adjustments from Wachovia's loan portfolio would hit $74 billion and the bulk of that would be written off shortly after the transaction closes.

In the wake of Friday's news, rating agencies Standard & Poor's and Moody's both placed Wells Fargo on watch for a potential ratings downgrade.

Still, the company said it expected the acquisition to add to earnings in the first year of operations, adding that it planned to raise $20 billion, primarily through a common stock sale to help prop up its capital position.

In the last month alone, the nation's banking industry has undergone a dramatic facelift, including the failure of Washington Mutual and its subsequent purchase by JPMorgan Chase, as well as Bank of America's acquisition of Merrill Lynch (MER, Fortune 500).

Dow falls under 10000 as financials weigh on market

NEW YORK (CNNMoney.com) -- Stocks plunged at the Monday open after a deepening financial crisis in Europe heightened worries about a global economic slowdown.

The S&P, Dow and Nasdaq were sharply lower, following a broad sell-off around the world.

The Dow dropped 280 points immediately at the open, approaching the 10,000-point benchmark, before bouncing back a little to a 202-point decline The Nasdaq and S&P each fell about 2.3%.

Japan's Nikkei index plunged 4.3% to close at a four-year low. European indexes - the Britain's FTSE 100, Germany's Xetra DAX 100 and France's CAC 40 - were down about 5% as investors looked beyond the bailout, focusing instead on Europe's growing crisis.

"It's this fear factor ... continuing to grow," said Peter Cardillo, chief market economist for Avalon Partners, before the market open. "It's becoming like a cancer which is spreading all over the place."

The White House said the government was working to alleviate the international crisis.

"The Treasury Department, the Federal Reserve, and other agencies and regulators are working together and with their counterparts overseas to address the global financial crisis," said White House deputy press secretary Tony Fratto. "Their aim is to provide market stability and improve confidence."

"It will take time to implement some new authorities, but we're confident that sustained attention to root causes of the crisis will over time increase stability and confidence," said Fratto.

Also, the Federal Reserve said it would double to $300 billion the amount it loans to financial institutions in need of short-term capital.

To examine how Wall Street got to such a sorry state, the House Committee on Oversight and Reform will begin a two-day hearing at 10 a.m. ET. On Monday, the committee will examine the causes and effects of the Lehman Brothers bankruptcy, with former Lehman CEO Richard Fuld expected to testify.

"Lax oversight and reckless investments on Wall Street are causing massive disruption throughout our economy," said Waxman, in a prepared statement. "Our hearings will examine what went wrong and who should be held to account."

On Tuesday, the committee will examine the government bailout of insurance giant AIG (AIG, Fortune 500).

Last week, the Dow Jones industrial average plunged nearly 818 points, or 7.3%, marking its worst week in nearly two months. Despite the House finally passing a tweaked bailout bill Friday, investors continue to worry that the bill won't be enough to stem the global economic slowdown.

Credit crunch: Adding to the dour mood on Wall Street, credit markets have remained frozen, with the 3-month Libor - the rate banks charge each other to borrow for three months - rising to an eight-month high on Friday, according to Bloomberg.

Other markets are also taking a beating. Crude prices fell below $90 a barrel for the first time since February in early trading Monday. And the U.S. dollar tumbled against the yen, although the greenback managed to make modest gains versus the euro and the British pound.

Over the weekend, Germany guaranteed all private bank accounts and helped work out a $69 billion bailout deal for Hypo Real Estate AG. Furthermore, French banking giant BNP Paribas said it would take a 75% stake in the remaining operations of troubled Belgian bank Fortis NV.

European Union finance ministers were slated to meet Monday and Tuesday to discuss ways to boost the battered banking system. Italian Prime Minister Silvio Berlusconi is pushing is bailout similar to the one signed by President Bush on Friday.

In the United States, the Federal Open Market Committee may lower the federal fun rate, currently at 2%, to fire up the economy. But Cardillo of Avalon said that wouldn't have much impact.

"Lowering short term rates is not going to be the answer," said Cardillo. "If they did that, they might cause the market to have a positive reaction, but the situation doesn't really change."

Companies: Drug company Eli Lilly (LLY, Fortune 500) said it would buy ImClone (IMCL), the biotech that produces colon cancer treatment Erbitux, for $6 billion.

Some Super Exotic Shakedown Videos

Lambo LP640 Takes on Koenigsegg CCX in Korea

In my continuing quest to feature every clandestine supercar race held on the face of the planet, here's this video featuring a Lamborghini Murciélago LP640 and a Koenigsegg CCX along the byways of South Korea (I think). Apparently the only truly universal language is supercar street racing.

Anyhow, there are some sweet sounds here leading up to an almost anticlimactic race. You can determine the winner yourself.

They're not having anywhere near this much fun in North Korea.

ZR1 Autobahn Shakedown

Over in the Netherlands they have a site called Autoblog.nl. It's sort of like the Autoblog we have over here, except not quite as evil. Anyhow, the Dutch Autobloggers rode along as the first production Corvette ZR1 in Europe went through its shakedown cruise on Germany's autobahn.

Not a bad way to spend the afternoon. Even if it's weird hearing guys with German and Dutch accents gush over a car built in Kentucky.

Fitzy's Week 5 Funspot w/ Fake Sarah Palin

Fitzy jumps on-board the "everyone has a parody version of Sarah Palin" bandwagon to help make his Week 5 fantasy picks.

Padilla Opens Cigar Lounge/Factory in Miami

By David Savona

Fans of Padilla cigars can now smoke one inside the factory where many will be made. Fabrica de Tabacos Padilla opened its doors in Little Havana last week. The new home of the Padilla cigar brand, envisioned by creator and brand owner Ernesto Padilla as a combination boutique cigar factory, cigar shop and smoking lounge, has yet to begin rolling cigars, but cigars are being sold and consumed on the premises.

The grand opening is scheduled for October 10, from 6 to 11 p.m.

Located across the street from historic Domino Park on 8th Street (Calle Ocho) and 15th Avenue, the cigar shop/factory will start rolling once the proper permits are secured.

“The new factory gives us something we have not had before, total control over production of our cigars,” said brand owner Ernesto Padilla.

Do the Dew Tullamore Style

Tullamore Dew is introducing a limited-release, 10-year-old Irish whiskey that will fill a niche between its standard and 12-year-old versions. Set to hit stores in winter, it will have a U.S. allotment of 900 cases.

The new blend, called Tullamore Dew 10 Years Old Reserve ($35), uses a mix of Spanish and American oak casks and a healthy component of pot-stilled whiskeys, which is also true of the 12-year-old ($23). Accordingly, the result is a taste profile much more full- bodied than the famously light standard Tullamore Dew ($23, no age statement) and closer to the full-bodied 12-year-old ($39).

As are most Irish whiskeys, standard Tullamore Dew is very smooth, delicate and sweet, but without the floral notes so common to other such drams. The extra aging in both the 10- and 12-year-old gives each a more full-bodied buttery character. Like its 12-year-old relative, the new whiskey has components of candy and spice, but not the Christmas pudding notes of the older quaff.

Tullamore Dew dates to 1829, when it was born in west central Ireland, in Tullamore, Count Offaly. The whiskey is now made by Midleton Distillery in County Cork as are many Irish whiskeys. Of the three largest Irish brands (with Jameson's and Bushmills), it is the only one owned by an Irish parent company, C&C International (Cantrell & Cochrane), which also distributes Magnus cider, Frangelico and Carolans Irish Cream.

TASTING NOTES:

Appearance: light but leggy, champagne to amber color

Nose: candy and vanilla, maple, Bourbon barrel

Palate: hard candy, savory maple candy

Very sweet finish

Judge blocks sale of Wachovia to Wells Fargo

NEW YORK (CNNMoney.com) -- A New York State judge has temporarily blocked the merger of Wachovia with Wells Fargo, according to a news release by Citigroup - which is trying to buy Wachovia itself.

New York State Supreme Court Justice Charles Ramos issued the order late Saturday, saying that Citigroup and Wachovia must appear before him on Friday, Citigroup said, adding that the order was granted over the objection of Wachovia.

In a deal struck last Monday with the assistance of the Federal Deposit Insurance Corporation (FDIC), Citigroup had offered to take over Wachovia's banking operations for $2.2 billion. The deal did not include Wachovia's asset-management or retail brokerage units.

But four days later, Wells Fargo said it was buying all of Wachovia for approximately $15.1 billion in stock.

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company," Wachovia CEO Robert Steel said in a statement on Friday.

The battle also has implications for taxpayers.

The Citigroup offer had come with a backstop from the Federal Deposit Insurance Corporation (FDIC), which would cover any losses on Wachovia's $300 billion loan portfolio beyond the first $42 billion. The Wells offer does not ask for FDIC assistance.

Wachovia spokeswoman Christy Phillips-Brown said in a statement the company believes its agreement with Wells Fargo is "proper, valid and ... in the best interest of shareholders, employees and the American taxpayers," the Associated Press reported. She said Citigroup is free to make a better offer to Wachovia under that agreement.

As of Friday, Citigroup still had support of industry regulators. "The FDIC stands behind its previously announced agreement with Citigroup," Federal Deposit Insurance Corporation Chairman Sheila Bair said in a statement, adding that it would pursue a resolution with all three companies.

Citigroup (C, Fortune 500) had been pressing Wachovia (WB, Fortune 500) and Wells Fargo (WFC, Fortune 500) to abandon their merger plans, arguing that it had entered into an exclusivity agreement with Wachovia.

Citigroup may have a legitimate claim to challenge the Wells Fargo deal. A copy of the exclusivity agreement between Citigroup and Wachovia obtained by CNNMoney.com reveals that Wachovia had agreed not to seek out another bidder, nor to provide information or enter talks that might facilitate a rival bid.
Why they want Wachovia

A Wells Fargo victory would transform the company, whose operations and bank branches are largely located in the Midwest and on the West Coast, into a dominant presence along the East Coast and in the Southeast.

That would put the San Francisco-based bank squarely in competition with the likes of JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500).

Should Wells Fargo ultimately prevail, it will control about $800 billion in deposits and have nearly 11,000 banking locations.

"This would represent a major strategic win for Wells Fargo," said David Hendler, analyst with CreditSights, in a report.

If Citigroup wins, it would represent a huge step forward for the company's retail banking aspirations, whose footprint has lagged many of its biggest rivals.

Investors cheered Citigroup's decision last week to buy Wachovia's banking assets. But some observers had wondered whether Citigroup could pull off the deal since it is in the process of a major restructuring after posting close to $18 billion in losses over the past three quarters.

The tie-up, however, comes at a cost for Wells Fargo. The company said it expected to incur about $10 billion in merger related costs. It said it would also record Wachovia's impaired assets at fair value, which could bring further writedowns.

Howard Atkins, Wells Fargo's chief financial officer, said that pre-tax losses and market adjustments from Wachovia's loan portfolio would hit $74 billion and the bulk of that would be written off shortly after the transaction closes.

In the wake of Friday's news, rating agencies Standard & Poor's and Moody's both placed Wells Fargo on watch for a potential ratings downgrade.

Still, the company said it expected the acquisition to add to earnings in the first year of operations, adding that it planned to raise $20 billion, primarily through a common stock sale to help prop up its capital position.

In the last month alone, the nation's banking industry has undergone a dramatic facelift, including the failure of Washington Mutual and its subsequent purchase by JPMorgan Chase, as well as Bank of America's acquisition of Merrill Lynch (MER, Fortune 500)

Most Significant Debuts at Paris Auto Show

From fuel-efficiency for the masses to fabulous exotics for the few, the highlights from this year’s Paris show.

BY JARED GALL AND STEVE SILER, PHOTOGRAPHY BY MIKE DUSHANE, MATTHIAS KNOEDLER, AND THE MANUFACTURERS
October 2008

As the Michigan skies shed their summer blues and don the dreary gray they’ll wear for the next seven months, there’s one ray of light that pierces our seasonal depression: the beginning of auto-show season. It means a lot of extra work for us, but it’s not like we have anything to do other than hibernate and shovel the driveway.

The auto market is changing fast, and amid the glamour and promised speed of the headline-grabbing debuts are a number of new models that mean more to us, more to the market, and more to their parent companies. It might be because of an important new technology, a new styling direction, or evidence of change aboard the mothership, but following are the 10 most significant debuts of the first show of this auto-show season, the 2008 Paris show.
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Audi S4

The S4 is significant because of what’s under the hood: a smaller engine than the outgoing generation. Where a 4.2-liter V-8 used to reside, the 2010 S4 will make do with Audi’s first supercharged engine, a direct-injection 3.0-liter V-6. Horsepower is down compared to the V-8, from 340 to 333, but torque increases a small amount to 325 lb-ft, from 317. Cars can get cleaner and more efficient, but they don’t have to get slow.

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BMW Concept X1

BMW’s fourth SUV, the X1 is a concept in name only. We expect to see a production model very similar to this vehicle within two years. The shocking thing about the X1 is that it is an SUV that was not designed with the U.S. in mind and is currently only “under discussion” for the North American market. Also, the X1 represents the further downsizing of models from one of the globe’s most prominent premium brands, an important idea in this age of growing automotive conservatism.

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Cadillac CTS Sport Wagon

The CTS Sport Wagon could make wagons cool again. It’s a stunning vehicle, with gorgeous lines, exciting bulges, and a rear end that could steal the spotlight at a Maxim cover shoot. With a 304-hp V-6 and 25 cubic feet of storage behind the rear seats, the CTS Sport Wagon is powerful and practical, too, and it’s coming to the U.S. Once upon a time, wagons were the car of choice for American families. May everything old be new again.

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Chevrolet Cruze

Small cars are big business elsewhere in the world, and are shaping up to be an arena for tremendous growth in the U.S. Chevrolet’s Cruze, the replacement for the Cobalt, is not only a stylish small car from a company that has long lacked one, but it is one of GM’s first products to be built on a global platform, meaning the car we’ll buy in the U.S. will be the same car sold in Europe and around the world.

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Chevrolet Volt

Though the production-intent version of the Chevrolet Volt officially debuted at a Detroit event a couple of weeks ago, Paris marks the official auto-show debut of the groundbreaking extended-range electric vehicle (E-REV), which should travel up to 40 miles solely on batteries before its gas-powered generator kicks into recharge them. Chevrolet product planners assure us that the Jetsons-like interior and nifty lighting details will remain when sales begin in November of 2010.

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Ferrari California

Once Ferrari gets on board with new ideas in the sports-car world, we have no choice but to take those ideas seriously, and the California boasts two new-to-Ferrari features: a dual-clutch gearbox in the style of Volkswagen’s DSG and BMW’s M DCT, and a folding hardtop. It’s apparent in the styling of the California that folding a metal roof into your trunk isn’t easy or graceful, but we still can’t wait to get behind the wheel.

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Honda Insight

The Honda Insight badge returns next April not on another two-seat, four-wheeled shoe, but as a relatively handsome, five-seat Prius clone. The 2010 Insight will feature its own version of Honda’s Integrated Motor Assist powertrain, giving it fuel economy similar to that of Honda’s own Civic Hybrid. The biggest difference, then, will be lighter weight, fewer frills, and with an estimated price of under $20K, lower cost.

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Lamborghini Estoque

This front-engine, four-door raging bull is decidedly tamer in looks than Lambo’s other offerings, and with its four seats and luggage-friendly trunk, it’s decidedly more livable, too. The styling mixes ’70s muscle-car proportions with the demonic front and rear styling we’ve grown to love with recent Lambos. Uncertain is which engine would power the Estoque’s four wheels, but our money’s on some modified version of the Gallardo LP560-4’s 552-hp V-10.

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Mercedes-Benz ConceptFASCINATION

Although humidors and binoculars are not likely to be included on the next Mercedes-Benz E-class options list, the look of the ConceptFASCINATION will most likely be standard equipment. While still not as edgy as a Cadillac, this concept suggests that the more assertive styling and intricate detailing of the C-class will be making its way throughout the Mercedes lineup.

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Volkswagen Rabbit/Golf/GTI

The world is watching as VW launches the sixth generation of the car that carries on the original Beetle’s legacy of bringing affordable German transportation—and in the case of the GTI, performance—to the masses. The new Golf (sold as the Rabbit in the U.S.) is cleaner-looking, lower, sexier, better-equipped, and cheaper to build. Based on an early drive of the Golf in Germany, we expect nothing short of success for round six.

Regenerating Torn Cartlidge

Knee filler: A biomaterial developed by Cartilix, called ChonDux, could improve current microfracture surgery aimed at repairing damaged knee cartilage. During the procedure, the surgeon applies a bioadhesive (shown in blue) to the cavity where the cartilage is missing. Tiny holes (red) are then drilled in the bone next to the cavity and filled in with hydrogel (wavy lines). UVA light is shined on the material, which causes the polymer to harden from a viscous liquid into a gel (crosshatched lines). Credit: Nature Materials

A new biomaterial developed by Cartilix, a biotech startup based in Foster City, CA, could dramatically improve the success rate of knee-cartilage repair surgery, making the procedure more accessible to patients with bad knees. The new material, called ChonDux, consists of a polymer hydrogel that, when injected into the knee during surgery, guides the regeneration of cartilage by stimulating repair cells in the body.

The minimally invasive knee surgery known as microfracture, in which a surgeon drills holes in the knee to stimulate the regeneration of cartilage lost from wear and tear, has become increasingly popular among athletes in recent years. A number of professional basketball players, including Greg Oden of the Portland Trail Blazers and Amare Stoudemire of the Phoenix Suns, have undergone the procedure, contributing to its rise in popularity. However, the procedure's success rate varies dramatically, says Norman Marcus, an orthopedic surgeon at the Virginia Cartilage Institute, in Springfield, VA. Among young athletes who have small defects in their knee cartilage, microfracture works up to 75 percent of the time. However, that number drops to 50 percent in older patients, Marcus says.

Marcus, who is chief medical officer at Cartilix, and his colleagues hope to improve the procedure and make it more accessible to the larger population of baby boomers. As people age, many are forced to curtail their physical activities due to painful, swollen joints caused by the deterioration of cartilage in the knee that comes with age or results from repetitive stress or injury. Marcus hopes to be able to treat these patients before they develop full-blown osteoarthritis. "The goal is to identify that big population that wants to be active throughout their entire lives," he says.

During microfracture, a surgeon uses a special awl to drill a series of tiny holes into the bone underneath the area of missing cartilage. Bone marrow containing stem cells seeps into the damaged area and forms a clot. The clot releases stem cells, which differentiate into cartilage cells and gradually form new tissue. However, because the new tissue is scar cartilage, not true cartilage, it may not have the same durability and strength as the original tissue--a likely contributor to the high failure rate of microfracture.

ChonDux consists of a hydrogel made of polyethylene glycol--a polymer commonly used in a variety of medical products--and a bioadhesive to keep the hydrogel in place after injection. First, the surgeon coats the inside of the cavity where the cartilage is missing with the bioadhesive and then, as in microfracture, drills tiny holes into the bone next to the cavity. Then the surgeon fills the empty space with the hydrogel and shines UVA light on the material, which causes the polymer to harden from a viscous liquid into a gel.The blood clot that forms from the microfracture then gets trapped in the hydrogel.

One of the biggest problems with transplanting biomaterials is getting the mostly aqueous material to stick in a very slippery space, says Jennifer Elisseeff, a biomedical engineer at Johns Hopkins University, who developed ChonDux and cofounded Cartilix. The adhesive in this case consists of chondroitin sulfate--a natural component of cartilage that is chemically modified to bind to the healthy cartilage surrounding the defect, as well as to the hydrogel. "It acts like a primer that helps paint stick to the wall," Elisseeff said at a panel at the recent EmTech conference in Cambridge, MA. The adhesive prevents scar formation between the new and old cartilage.

Elisseeff, who was a member of Technology Review's TR35 in 2002, and her team have tested the material in rabbits and goats and have found that more cells from the bone marrow get trapped in the blood clot when the hydrogel is present, compared with microfracture conducted without the gel. The researchers also noted that the defects fill faster with the biomaterial than without, and that the newly formed tissue more closely resembles true cartilage.

Results from a small clinical trial in Europe also look promising. According to findings presented at EmTech, magnetic resonance scans of the knee six months after the procedure showed that patients who received the hydrogel had grown more tissue than those undergoing traditional microfracture, and they reported less pain. Cartilix hopes to submit the data from its European study to the U.S. Food and Drug Administration (FDA) and begin a larger human trial in the United States.

While there are a number of studies on different carriers, such as hydrogels and other biomaterials, that can hold the cells in place and grow cartilage, "what's exciting about this work is that this bioadhesive can hold the hydrogel in place fairly strongly, giving it time to regrow cartilage," says Farshid Guilak, a biomedical engineer at Duke University School of Medicine. And because the biomaterial doesn't need to be seeded with cells prior to injection--a strategy that many research groups are investigating--it might be easier for Cartilix to obtain FDA approval for the material.

Elisseeff is adapting her biomaterials for other applications as well. For instance, she recently licensed some of her technology to Kythera Biopharmaceuticals, a company based in Calabasas, CA, that specializes in cosmetic medicine. The company is using Elisseeff's materials to develop light-activated cosmetic fillers that last much longer than those currently on the market. These fillers, which are typically injected into the skin along the sides of the mouth to minimize wrinkles caused by aging, tend to have a short life span. Patients often have the procedure repeated several times a year.

"With our materials, we shine light over [the area of the skin] that was injected and cross-link the materials so that they don't degrade as quickly," says Elisseeff. She says that Kythera plans to test the cosmetic fillers in patients in a couple of months. The first pilot study will take place in Beverly Hills.

TV's 'Mr. Clean' dies at 92

LOS ANGELES, California (AP) -- House Peters Jr., a TV actor who became the original Mr. Clean in Procter & Gamble's commercials for household cleaners, died Wednesday. He was 92.

House Peters Jr. (left) poses with his father during the making of a Western in the early '50s.

Peters died of pneumonia at the Motion Picture and Television Fund Hospital in Los Angeles, said his son, Jon Peters.

The elder Peters' most memorable role came as Mr. Clean -- a muscular man with a bald head, a hoop earring and a no-nonsense attitude toward dirt and grime. From the late 1950s and into the early 1960s, Peters Jr. helped advertise the famous household cleaner with the trademark jingle, "Mr. Clean, Mr. Clean."

Peters Jr. played many supporting roles through his career, including working with Roy Rogers and Gene Autry on their television shows. He also appeared in "Perry Mason," "Gunsmoke," "The Twilight Zone" and "Lassie."

"He always played the heavy," Jon Peters said, referring to his father's customary roles as a villain or brawny character. "Even though he wasn't happy about being cast in those roles, he worked really hard at it."

His father's acting career spanned 1935-1967, according to his Web site. He also wrote an autobiography, "Another Side of Hollywood," in which he describes growing up the son of an actress and silent film actor in Beverly Hills. His father, Robert House Peters Sr., has a star on the Hollywood Walk of Fame.

Don't Miss

• TV Acres: Mr. Clean

Peters Jr. was never a leading man, but played many character parts in cowboy movies and won a Golden Boot Award in 2000 for his lifetime contributions to the western genre, his son said.

Peters Jr. was born January 12, 1916, in New Rochelle, New York, as Robert House Peters Jr. His son said Peters Jr. studied drama in high school and became inspired to pursue an acting career.

He also is survived by his wife, Lucy Pickett, a daughter, another son and four grandchildren.

Rare striped icebergs spotted in the Antarctic (Photos)

Seen in the Antarctic, these amazing striped icebergs look like strange creatures from the deep. Littering the Antarctic, these large pieces of freshwater ice have broken off to form rainbow colored glaciers.

click here for the pics | digg story

Larry Flynt is Hustling up an Ala-skin flick with Sarah Palin look-alike

Alaska Gov. Sarah Palin and Hustler founder Larry Flynt

Larry Flynt is using the power of porn to express his views on Sarah Palin.

The Hustler founder and freedom of speech advocate has produced an X-rated movie using an adult-film actress who resembles the Republican vice presidential candidate.

Flynt's producers posted an anonymous help-wanted ad on Craigslist in L.A. just days after the Republican convention. "Looking for a Sarah Palin look-alike," read the ad, "for an adult film to be shot in the next 10 days." The actress would be paid $3,000 for the part, said the ad.

No, it's not Tina Fey.

Flynt's spokesman David Carrillo confirmed to us yesterday that the film has been shot by Hustler Video, but he wouldn't yet reveal the title. They need only consult bloggers from humorist Mo Rocca to Choire Sicha at Radar, who upon discovery of the ad came up with such gems as "Juneau You Want It" and "Northern Xxxposure."

The iconoclastic publisher, who was portrayed by Woody Harrelson in the movie "The People vs. Larry Flynt," has never hidden his liberal views. In his 2005 book "Sex, Lies and Politics: The Naked Truth," he eviscerated the Bush administration for what he saw as its violations of U.S. freedoms guaranteed under the Bill of Rights.

Gov. Palin's spokesman could not be reached by deadline.

Nude Portait of Alaska Governor Sarah Palin Unveiled

Bruce Elliott, 68, of Chicago, has unveiled a nude portrait of Alaska Governor Sarah Palin in his bar in the North Side of Chicago, the Old Town Ale House. The work is four feet tall and is drawing crowds to the bar. In the portrait, the governor is wearing her trademark hairdo, holding an automatic rifle and standing naked on a polar-bear skin rug.

Bruce Elliott said, "I don't see how she could be offended by this. I made her into a sex figure."

Bruce Elliott admits to being a supporter of Senator Barack Obama. He also said that his daughter posed nude for the painting.

He said, "My daughter is a heck of a stand-in for Sarah Palin. She can even do the voice."

Bruce Elliott further stated, "I've been following her (Sarah Palin) religiously. I had never heard of her before, like everyone else. I find her bizarrely fascinating, even though I pretty much despise everything she stands for."

click pic to ENLARGE

The New Yorker Endorses Barack Obama

A very good piece on why Obama should be elected.

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The sapphire mines of Madagascar [PICS]

The tiny village of Ilakaka, Madagascar had barely 40 residents before 1998. Then, a large deposit of sapphires was discovered along a nearby riverbed, and caught the eye of some Thai businessmen in the gem trade. 25 Great Pics..

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America's 12 Best Barbecue Joints

Compare those succulent spareribs from Leon's in Chicago with the whole-hog barbecue in North Carolina's Skylight Inn, while planning a trip to Memphis for barbecue spaghetti. Here are our picks for some of the best, representing smoke-pit passions from coast to coast. It'll make you glad to be American...

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More TV Viewers Cut Cable's Cord; Here's What They're Watching Online Instead

Chismillionaire has become a huge fan of Hulu and watching programming online instead of being sucked into and bent over to the tune of $80 a month for 110 channels you never watch.
That's two big bottles of booze or a steak dinner people!

Kenny Johnson, a senior credit analyst for Fox Home Entertainment in Garden Grove, Calif., recently took a hard look at his finances -- and canceled his c-television subscription.

With a newborn child at home and growing household expenses, he says the decision saved him and his wife more than $40 a month -- or roughly the increase he is paying at the gas pump every month for his commute to work. The couple held onto their DSL Internet connection, which costs about $38 a month.

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Now the Johnsons access most of their television shows online, through Web sites like Hulu.com, in addition to the free broadcasts they pick up over the airwaves. They also bought a set-top box that allows them to stream shows via Netflix.com to their television set, including episodes of NBC's "The Office" and Showtime's "Weeds."

"To me, it looks just like my cable," Mr. Johnson says.

In the past two years, nearly every major network show and many of the biggest cable programs have become available on the Internet. The virtual library of content includes everything from "Desperate Housewives" and "CSI" to "The Colbert Report" and "Mad Men."

Some of the biggest hits online are memorable TV moments. More than half of the people who saw recent "Saturday Night Live" skits featuring comedian Tina Fey as vice presidential candidate Sarah Palin watched the skits over the Internet, according to a survey of 500 viewers on Monday by Solutions Research Group. Nearly a quarter saw them on YouTube and 21% saw them on NBC.com or Hulu.com.

Many shows can be viewed for free and are accompanied by a dollop of ads that's small when compared with the number of commercial breaks on television. As a result, some cost-conscious consumers are ditching their cable subscriptions altogether.

Brian Stauffer

"I'm saving a lot of money," says Tony Leach, a product manager at an online stock brokerage firm in the Bay Area. Mr. Leach canceled his $60-a-month cable subscription two years ago and has watched all of his favorite television shows on the Internet ever since.

The online television bonanza reflects a scramble by networks and cable stations to avoid the fate of the music business, which is still reeling from the effects of piracy and early missed opportunities to capitalize on the Internet.

Complete episodes of about 90% of prime-time network television shows and roughly 20% of cable shows are now available online, according to Forrester Research analyst James McQuivey. There are still notable holdouts, such as Fox's "American Idol" and current seasons of HBO series like "Entourage."

But by aggressively seeking to stay ahead of consumer behavior, content providers are also fueling the growth of this new form of distribution, and that could undermine the economics of the television business, critics say. More than 80% of U.S. households pay an average of $70 a month to get programming piped into their homes via cable, satellite or telephone companies. Most of the remaining households watch advertising-supported shows on their TVs -- programs that are broadcast the old-fashioned way, over the public airwaves.

The number of people watching all of their programs online is still small; some estimates put the number at just 1% of the total television audience. In part, that's because watching online isn't as easy as channel surfing on the couch, TV remote in hand. Viewers must either watch shows on their personal computers, or use a device like Apple TV, which allows them to download shows from the Internet onto their television sets.

Within the next several years, however, media and technology executives say that a host of new technologies will make television access to online video a mainstream phenomenon. Vudu Inc. already sells a $299 set-top box with a remote control that allows users to download television shows for $1.99 per episode. Microsoft and Sony both sell television shows that users of their Xbox 360 and PlayStation 3 videogame consoles can download over the Internet for viewing on television sets.

Netflix subscribers can buy a $99 set-top box from Roku Inc. that streams videos on their television sets. The service is included at no extra charge in the monthly Netflix fee for renting DVDs.

Stephen Webster/ Wonderful Machine

Patrick Crowley, a 35-year-old free-lance Web designer who lives and works in a loft in downtown San Diego, has configured his computer and his space so he can shift easily between work and play. His Macintosh has a 24-inch monitor and sits on a desk on one side of his living room, where he spends most of the day working on projects for clients. After hours, the Mac serves as his entertainment center, which explains the couch, lounge chair and coffee table positioned across from it on the other side of room.

Seated at his computer, Mr. Crowley types Hulu.com into the Web browser. (The site is a joint venture of NBC Universal and Fox, whose owner, News Corp., also owns The Wall Street Journal.) That's where he goes to watch many of his favorite shows, such as the Comedy Central's "The Daily Show with Jon Stewart." He also downloads programs from iTunes, where advertising-free episodes sell for $1.99 each. His library has about 100 episodes, including installments of Showtime's "Weeds " and NBC's "Studio 60 on the Sunset Strip." He's even installed an application onto his iPhone that turns the device into a remote control for his iTunes video downloads, so he can change clips without getting up from his couch.

It takes about 10 minutes to download a half-hour TV show on iTunes, though Mr. Crowley says he can usually start watching it a few seconds after the download begins. Shows on Hulu and the television networks' own Web sites are "streamed," a method that allows videos to begin playing instantly but leaves no permanent copy on users' computers.

Since canceling his cable television service from Cox a year and a half ago, while maintaining his high-speed Internet connection through the company, his monthly service bill has gone to about $60 a month from $160. "It's a much more efficient way of watching TV," says Mr. Crowley. He figures he spends about $8 a month at the iTunes video store, and watches about as much television as he did before he cut the cable cord.

A survey of NBC.com users in the second quarter of 2008 showed that 83% of respondents watched a show on the network's Web site because they missed its original airing. "We see no evidence of a substantial number of people choosing to watch online instead of on television," says Alan Wurtzel, president of research for NBC Universal.

Most television shows are available online only after a delay from their original air date, anywhere from a day to months later. Televisions networks take down many older episodes after a while, so users don't have a permanent library of some shows.

The online selection of live sports games is spotty as well. This season, for example, the National Football League will make Sunday night games available live on the Net, but those amount to only about 7% of all regular-season NFL match-ups. Cable and broadcast news shows typically aren't streamed live on the Internet, unless there's a major breaking news event like Hurricane Katrina.

Still, research firm Nielsen Online estimates that in June, 3.2 million Internet users watched more than 106 million video streams on Hulu.com, a site that wasn't available to the public until March. Walt Disney Co.'s ABC.com delivered nearly 27 million streams to 2.9 million viewers that same month, according to Nielsen. The data include everything from behind-the-scenes clips and segments of shows to complete episodes.

Other research indicates that online video-watching is cannibalizing television audiences. According to a spring survey by Integrated Media Measurement Inc., a research firm that tracks media consumption, more than 20% of viewers in the firm's 3,200-person panel watched some prime-time network television online, up from roughly 6% in the fall. Half of those online viewers said they were no longer watching those shows on television.

"What this study is showing is that the long-vaunted convergence of the TV and the computer is happening faster than anybody thought it was happening," says Tom Zito, Integrated Media's company's CEO.

Craig Moffett, a cable-industry analyst at Sanford Bernstein, says he believes television and cable companies are recklessly pursuing Web viewers to avoid seeming like "Luddites," without considering the long-term consequences if too many customers pull the plug on their service in favor of free Web video.

A typical half-hour television show contains about eight minutes of advertising, while that same show online contains about two minutes of ads, or about a quarter of the "ad load," Mr. Moffett says.

Cable channels, meanwhile, may be taking an especially big risk because they typically get half or more of their revenue from subscriber fees shared by cable and satellite operators -- a business that could be jeopardized if people start canceling their pay-TV subscriptions. (Broadcasters like ABC, Fox, NBC and CBS don't get a cut of subscriber fees from cable carriers, since the networks' channels are also available free.)

Tensions are beginning to heat up between cable operators and cable channels over free Web video. Glenn Britt, CEO of Time Warner Cable Inc., has been one of the most outspoken people on the topic, telling cable program executives to not expect to continue sharing subscription revenue if they keep giving their top shows away for free online. When asked how programmers have been responding to such comments, Mr. Britt says, "Not well."

Executives at several cable channels were reluctant to discuss the topic, at the risk of further straining discussions about Internet television with their cable-operator partners. "We can't just cut the cable companies out," says one of those executives.

Of course, Web watchers will still need fast Internet connections to get all that video, a potential boon for the broadband Internet businesses at cable and telecommunications companies.

Consumers' sympathy for the cable operators is in short supply after years of rate increases. Between 1995 and this year, cable and satellite prices have increased by 79%, almost double the level of inflation during that period, according to the Bureau of Labor Statistics. Total U.S. cable-industry revenue from television subscriptions hit roughly $53 billion in 2007, plus an additional $23 billion when Internet access and telephone fees are included, according to Bernstein Research.

And while cable operators say that the industry has provided far more value over the years, with everything from more channels to video-on-demand, most consumers actually use only a small portion of the cable-television offerings they pay for. Last year, the average home received 118.6 cable channels but only tuned into about 16 of them, or 13% of the total available to them, according to the Nielsen Co.

Jeff Pulver, founder of PrimetimeRewind.tv Inc., which makes it easier to locate Web television shows, says he believes the Facebook and Google generation won't look askance at getting television shows from the Internet.

Still, adds Mr. Pulver, who also co-founded the Internet phone company Vonage, "Some people will [continue] to subscribe to cable, the way their grandparents did."

Write to Nick Wingfield at nick.wingfield@wsj.com

House Passes Bailout on 2nd Try

WASHINGTON -- U.S. House of Representatives lawmakers wary of growing signs of the nation's economic distress voted in favor of a $700 billion Wall Street rescue package on Friday, sending the biggest government intervention in the financial markets since the Great Depression to President George W. Bush for his signature.

European Pressphoto Agency

U.S. House Minority Leader John Boehner, House Minority Whip Roy Blunt and Republican Conference Chair Adam Putnam hold a press conference after a meeting of the House Republican Caucus about the revised bailout bill.

The 263-171 vote was a stark reversal from Monday, when House lawmakers shocked investors and their own leaders by voting against a more narrow version of the plan to buy up distressed assets from financial institutions. That vote sent financial markets tumbling and forced the Bush administration and congressional leadership to scramble and salvage the rescue plan.

The result: a $700 billion bailout for financial firms combined with $152 billion in unrelated tax breaks and broader tools for federal regulators to deal with the growing economic crisis. The Senate passed the bill with a strong, bipartisan tally of 74-25 on Wednesday evening.

The vote in the House was closer, in part a reflection that lawmakers are less than five weeks away from federal elections and voters are increasingly focused on the economy. Supporters of the rescue plan in recent days made a concerted effort to draw a line between Wall Street's woes and the concerns of everyday taxpayers.

"We must pass this legislation to stop the hemorrhaging," Majority Whip James Clyburn (D., S.C.) said in a floor speech, calling the legislation not about Wall Street but about the grocery stores, community banks and other local businesses facing economic hardship.

The likelihood of a winning vote cheered Wall Street, with the Dow Jones Industrial Average up 220 points in early afternoon trading as the vote was tallied.

October but without the Muscle

In a Year of Transition, Baseball's Postseason Pits Old Philosophies Against New Hybrids; All Eyes on Tampa Bay

More is at stake in these baseball playoffs than a trophy and a grip-and-grin session with the president. This year, we may finally see the rise of a new philosophy. A sport that sloughed off the legacies of the dynastic New York Yankees, home-run king Barry Bonds and pitching legend Roger Clemens this year could use it.

The Tampa Bay Rays and the Los Angeles Angels, the teams with the best records in the sport's stronger league, play a faster, quirkier brand of baseball that suits a changing game. Home runs hit a 15-year low this year, and young players whose salaries teams can control are increasingly prized. (Even the Yankees declined to trade for pitching ace Johan Santana last year, citing the need to keep their young prospects, who ended up playing disastrously.) The Rays and Angels, less reliant on power hitting and veteran talent than the rival Boston Red Sox and Chicago White Sox, may be better fitted to adapt.

MLB/Getty Images

Angels closer Francisco Rodriguez

Picking This Week's Impact Players

Baseball Info Solutions ran a set of computer simulations for the first round of this year's baseball playoffs to measure the impact some key players might have on offense. See the most impactful players overall.

Nothing is so quickly imitated as a winner, so if the Rays or Angels follow on their regular-season excellence with a World Series victory, it will set a powerful example. So too, though, would a win by a more traditionally styled team like the Chicago Cubs, who haven't won in a century but are favored this year by bookies as well as sentimentalists.

Styles make fights, and baseball teams. Take the set between Tampa Bay and the White Sox, two teams that couldn't be less alike. The Rays, who before this season had never lost fewer than 90 games, beat out the Yankees for a playoff spot with a payroll one-fifth as big. The White Sox won the World Series three years ago, and won their division this season with a payroll ranked fifth in the game. The 32 hitters who took an at-bat for the Rays this year, collectively the second-youngest such group in the league, have hit 950 home runs in their careers. Chicago's Jim Thome and Ken Griffey, part of the American League's second-oldest lineup, have hit 1,151.

Getty Images

Tampa Bay third baseman Evan Longoria

On the field, the differences are at least as stark. The Rays, led by defenders like third baseman Evan Longoria and shortstop Jason Bartlett, led the majors in converting batted balls into outs, a key measure of defensive efficiency. The White Sox were 23rd. The Rays were second in the majors in stolen bases; the White Sox, 25th. The greatest difference, though, is the home run. The White Sox led the majors with 234, so many that even though Tampa Bay ranked 10th with 180, they were closer to 24th-place Toronto than to Chicago. Other than ace Scott Kazmir, the Rays' young starters don't give up many home runs; expect this one to be a victory for Tampa Bay, and for evolution.

A similar, if less dramatic, dynamic is at play in the American League's other series. Boston, the best-run team in baseball, seeks to win a third World Series in five years and establish a dynasty. They feature a sound defense and a fine pitching staff led by starters Daisuke Matsuzaka and Jon Lester, who combined for a 34-9 record and finished third and fourth, respectively, in the league in earned run average. Their success, though, is keyed by an overwhelming offense.

Sophomore second baseman Dustin Pedroia led the league in runs and hits, first baseman Kevin Youkilis ranked among the leaders in every important offensive category, and overall the team rated second in baseball in batting average, first in walks, and third in extra-base hits. They did so despite an off-year from David Ortiz and the July trade of Manny Ramirez. This is a ferocious lineup.

Getty Images

Boston ace Daisuke Matsuzaka

The Angels, conversely, ranked among the bottom 10 in baseball in walks and extra-base hits, and their .269 average ranked just 12th in the game. Crucially, though, with runners on base that rose to .287, third in the game. Similarly, their pitching, paced by homegrown starters Ervin Santana and Joe Saunders, was no better or worse than Boston's, but their bullpen was better by a third of a run per game (Wednesday's Game 1 drubbing notwithstanding). Closer Francisco Rodriguez was the first pitcher ever to save 60 games in a season.

Add it up, and the Angels won five more games than the Red Sox despite outscoring their opponents by 83 fewer runs, less because of what they did than when they did it. Hitting and pitching well in the pinches can, if you do it consistently, make up for a lot. Between that, the dubious health of key Boston players like ace Josh Beckett and outfielder J.D. Drew, and the fact that the Angels won eight of the nine games the two teams played this year, this one looks like a victory for the Angels and another defeat for take-and-rake baseball.

It's easy to reduce these series to caricature. The Red Sox are in truth no softball team, and have great young homegrown players like Mr. Pedroia, Mr. Lester and closer Jon Papelbon. The Angels have plenty of pricey veterans like outfielders Vladimir Guerrero and Torii Hunter. The Rays, for all their youthful vigor, are a very patient team; the more experienced White Sox aren't. In all, though, these two series match power against technique, and strategic emphases on speed and situational play against raw power. No moral virtue attaches to either, but one, given the sport's cyclical nature, represents where baseball is going, and the other represents where it has been.

For their part, the National League's playoff entrants all basically follow the same model as the Red Sox and White Sox. This makes sense for several reasons. The league isn't as competitive, so there's less incentive for teams to try to outwit opponents with novel strategies. There's also a generational difference at play. Three National League managers are in their 60s, while three American League ones are in their 40s. Joe Torre of the Dodgers alone has managed more seasons than all the American League skippers put together, while Chicago's Lou Piniella has managed nearly as many.

What the league lacks in novelty, though, it makes up in individual talent, including two of the great midseason acquisitions of all time. Milwaukee, which hasn't been seen in October in more than a quarter-century, is doing so due largely to the presence of CC Sabathia, who put up an awesome 11-2 record with a 1.65 ERA and seven complete games in 17 starts after coming over in a July trade. Manny Ramirez hit .396 with a .489 on-base average and a .743 slugging average in 53 games for the Dodgers after an ugly exit from Boston. On the other hand, Mr. Sabathia, for all his vaunted endurance, can only start twice for the Brewers, and Mr. Ramirez may not even be the most important hitter on his team.

Getty Images

Philadelphia second baseman Chase Utley

Baseball Info Solutions, a Pennsylvania-based research firm, recently ran a set of simulations of each playoff series. In each one, they removed a key offensive player from a team, substituted an average player at his position, and then played out that team's series 50 times. Some results were expected. Left fielder Ryan Braun, for instance, had the most impact of any Brewer; on average, the team scored 1.02 fewer runs per game without him than they did with him. Some were less so: Philadelphia Phillies second baseman Chase Utley had more than twice as much impact as first baseman Ryan Howard, who hit 16 more home runs and drove in 42 more runs during the regular season.

The most surprising result, though, came in Los Angeles. Removing right fielder Andre Ethier, who hit .305 with a .375 on-base percentage this year, cost the Dodgers an average of 0.96 runs per game in the simulation series. Removing Mr. Ramirez cost them 0.58 runs per game (the difference has to do with talent levels at their respective positions).

Whether or not Mr. Ethier outplays Mr. Ramirez -- with respect, I wouldn't bet on it -- this kind of result points up the impact a single player can have in the right circumstances, and how unpredictable the playoffs can be. One would assume that Philadelphia's imposing No. 4 and No. 5 hitters, Mr. Howard and Pat Burrell, will play a major role in their series against Milwaukee; according to the BIS simulations, though, neither should be expected to have much more impact than the Brewers' journeyman center fielder Mike Cameron. Given the Phillies' greater patience and speed and the presence of closer Brad Lidge, who didn't blow a save all year, you probably have to give them the edge here. But keep an eye on Mr. Cameron.

As for their opponent, the bookies and sentimentalists may well be disappointed. Chicago's ace pitchers, the monstrous sinkerballer Carlos Zambrano and strikeout artist Rich Harden, are unbeatable in theory. In practice, given Mr. Zambrano's dodgy shoulder and the brittle Mr. Harden's randomly disappearing fastball, the Cubs entered the playoffs with a sketchier rotation than the Dodgers. (Tellingly, Ryan Dempster, who had a terrific year but also spent the last two as a closer running up ERAs near 5, started the opener -- in which he walked seven and gave up four earned runs in a 7-2 loss.)

Further, their imposing lineup, built around a wall of right-handed power in Derrek Lee, Alfonso Soriano, Geovany Soto and Aramis Ramirez, can be expected to look much less imposing against a Dodgers staff that held right-handers to a .239 average, third-best in the game.

Whichever team comes out of the National League, one can expect them to have a very hard time of things, perhaps barring a miracle run by the flawed White Sox, easily the weakest of the junior circuit's teams. If they run up against the Red Sox, they'll be facing a team like them, but better; if they meet the Rays or Angels, they'll be facing a team that beat the Red Sox. I like the odds of the latter; for what it's worth, so do the bookies.

Wells Fargo to buy Wachovia - snub Citigroup

A battle for Wachovia Corp. erupted as Wells Fargo & Co. struck a $15.4 billion deal to buy the Charlotte, N.C., bank only four days after it agreed to a takeover by Citigroup Inc. at a much lower price.

Wachovia insisted there is nothing to stop it from scrapping the federally backed purchase by Citigroup. But the New York bank threatened to challenge the Wells Fargo deal on the grounds that it is in "clear breach" of an "exclusivity agreement" signed earlier this week, according to a statement issued by Citigroup minutes after the end of a Wells Fargo conference call with analysts and investors.

More on Wachovia

• Aggressive Strategy Shift for Well Fargo
• Citigroup Statement: Wells Conduct Is 'Interference'
• FDIC Statement: Stand Behind Citigroup Deal
• Fed Statement: Haven't Reviewed 'Issues'
• Real Time Econ: Regulators' Double-Edged Sword
• Live Blogging the Wells-Fargo-Wachovia Call
• Wachovia statement
• Deal Journal: Today in the 11th Hour Rescues
• Earlier: Citi, U.S. Rescue Wachovia

Citigroup also is considering increasing its bid for Wachovia, valued at about $2.16 billion.

According to a copy of the Sept. 29 agreement between Citigroup and Wachovia that was reviewed by The Wall Street Journal, Wachovia agreed not to "enter into or participate in any discussions or negotiations with … any third party that is seeking to make, or has made, an Acquisition Proposal." (See the document.)

Wachovia officials don't dispute the contents of the agreement signed with Citigroup. But a person familiar with the situation said that Wachovia directors were obliged under their fiduciary duty to shareholders to accept Wells Fargo's higher offer, even though that leaves Wachovia legally vulnerable.

The recriminations and abrupt upending of the deal struck by Citigroup and Wachovia before dawn Monday set up the likelihood of an extraordinary fight between the third- and fourth-largest U.S. banks in stock-market value to snag Wachovia. It has fallen to eighth-largest among U.S. banks because of its battered stock price and the conversion of Goldman Sachs Group Inc. and Morgan Stanley to bank-holding companies last month.

The situation also reflects the colliding interests of banks, their stock and debt holders, regulators and acquirers amid the chaotic environment swirling through the U.S. banking industry.

Landov

Richard Kovacevich, chairman of Wells Fargo

The Wells Fargo offer is for $7 a share in stock, based on Thursday's closing price, 79% above where Wachovia shares finished. Wells Fargo also will assume Wachovia's preferred stock and debt.

In conjunction with the deal, Wells Fargo will issue $20 billion in new securities, mainly common stock. Wachovia shares surged 64% premarket to $6.40 while Wells Fargo rose 1% to $35.50 and Citigroup fell 6% to $21.15.

Citigroup executives, blindsided by the Wells Fargo agreement to buy Wachovia, are considering filing a lawsuit against the two banks and also may sweeten their bid for Wachovia, according to a person familiar with the matter.

Citigroup, which hoped to gain access to Wachovia's deep well of deposits, is considering its legal options, including suing Wachovia for breach of the exclusivity pact and suing Wells Fargo for tortious interference, the person said.

In a statement, Citigroup "demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction, any conduct in furtherance thereof, or any other act in violation of the Exclusivity Agreement. Citi has substantial legal rights regarding Wachovia and this transaction."

Citigroup executives also believe that federal banking regulators may intervene on their behalf to block the Wachovia-Wells merger, this person said. A spokesman couldn't be immediately reached for comment.

Officials from Wells and Wachovia dismissed the Citigroup concerns when answering questions on this topic during a conference call.

'Deal Is Solid'

"We think that this deal is solid," said Wells Fargo Chairman Richard Kovacevich. "We are not aware of any merger agreement that has been consummated at the time and as far as other issues, I haven't seen anything in terms of issues that Citigroup had or doesn't have. We feel very confident that this transaction has been done appropriately and will continue and be consummated."

He added: "We believe that regulators would also be comfortable with what has transpired here."

Wachovia Chief Executive Officer Robert Steel, referring to two questions pertaining to Citigroup, noted "there is controversy on this issue and that will be addressed in the appropriate way."

An analyst followed that response by asking Mr. Steel directly if he could address whether Wachovia had a binding agreement with Citigroup.

Mr. Steel said, "No."

A resolution against Citigroup would be a bad development for the company. It would highlight weak spots at the New York banking giant and challenge the notion that it has moved solidly from the problem category to the solution camp as the financial crisis unfolds.

Citigroup's move to buy Wachovia's banking operations was widely seen as an effort to shore up its deposit base, which will now look less solid. Also, Wells Fargo is buying all of Wachovia without government help. That makes Citigroup's deal for only part of the company and need for Federal Deposit Insurance Corp. guarantees against losses on some problem loans look relatively paltry. In a statement, FDIC director Sheila Bair said the agency stands behind "its previously announced agreement with Citigroup."

Ratings agencies warned after the Citigroup deal that they could downgrade the financial services company's debt. They expressed concerns about the poor quality of some of Citigroup's own assets.

A Citigroup spokeswoman wasn't immediately available to comment.

Under the deal, Wells Fargo will acquire all of Wachovia. The Citigroup deal had excluded the asset-management and brokerage operations and put the Federal Deposit Insurance Corp. on the hook for potential loan losses.

Mr. Kovacevich said that the deal "provides superior value" to the Citigroup deal and that it will allow Wachovia shareholders to "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."

The deal represents a major reversal from Wells Fargo's historical trend against acquisitions. Just two months ago, Chief Executive John Stumpf said it was highly unlikely Wells Fargo would pursue a large East Coast rival.

But Wells Fargo's appetite for acquisitions began changing in September, as Mr. Kovacevich said the bank "often buys fixer-uppers," adding, "Given the financial conditions today I feel like a kid in a candy store." Wells Fargo had also taken a look at Washington Mutual Inc. before it was seized last week and sold to J.P. Morgan Chase & Co. for $1.9 billion.

Wachovia shareholders will get 0.1991 share of Wells Fargo stock for each Wachovia share. Following the deal, Wells Fargo expects to incur about $10 billion in merger and integration charges. To maintain its capital position, it plans to issue up to $20 billion of new Wells Fargo securities, primarily common stock.

As part of the deal, Wachovia is issuing Wells Fargo preferred stock that votes with Wachovia's common stock and gives Wells votes equal to 39.9% of Wachovia's voting power.

"Today's announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies: our shareholders, customers, colleagues and communities," Mr. Steel said in a prepared statement. He added that the deal "enables us to keep Wachovia intact and preserve the value of an integrated company, without government support."

Mr. Kovacevich said the deal "will result in an immensely strong, stable financial services company." He noted the inclusion of Wachovia's brokerage and asset-management businesses "avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia's team members and customers." He added, "And, of course, this agreement won't require even a penny from the FDIC."

Charlotte will be the headquarters for the combined company's East Coast retail and commercial and corporate banking business, while St. Louis will remain the headquarters of Wachovia Securities. Three members of the Wachovia board will be invited to join the Wells Fargo board following completion of the deal. Mr. Stumpf indicated the company will try to "retain as many of the talented Wachovia team members as possible."

Citigroup's deal with Wachovia had been hammered out in frenetic negotiations that lasted all of last weekend. The immediate catalyst was that major credit agencies were poised to cut Wachovia's ratings, just as the bank had billions of dollars in debt coming due this week.

Wells Fargo initially said it was prepared to buy Wachovia for more than $20 billion and wouldn't require any government assistance. But late Sunday, the San Francisco bank abruptly changed its mind, setting into motion a desperate scramble through the night that ended with the government presiding over Wachovia's shotgun marriage to Citigroup early Monday morning.

Wells Fargo's deal announced Friday indicates that it changed its mind again and that Wachovia was quick to break its agreement with Citigroup.

Wachovia said it received and approved the proposal from Wells Fargo Thursday night.

Acquiring Wachovia would have vaulted Citigroup into the upper echelon of U.S. banks. The addition of Wachovia also would have allowed Citigroup to boast the third-largest network of U.S. bank branches. Today, Citigroup has about 1,000 U.S. bank branches -- lagging behind nine other banks.

Wachovia's woes came into sharp focus after last week's seizure of Washington Mutual Inc. Shares of Wachovia slumped as investors looked at it as the potential next victim in the credit crunch.

Wachovia wasn't doomed by the same sort of customer exodus that led regulators to seize WaMu's banking operations last week. But federal officials concluded that the bank's deteriorating condition posed a threat to the already fragile U.S. financial system.

Wachovia has tens of billions of dollars in so-called option-ARMs outstanding. The adjustable-rate mortgages allow some homeowners to actually increase their loans' balance by paying less than the full monthly interest they owe. They have been at the heart of surging foreclosures and defaults.

—Marshall Eckblad, Donna Kardos and Tony Cooke contributed to this article.

Write to Matthias Rieker at matthias.rieker@dowjones.com and David Enrich at david.enrich@wsj.com