Abu Dhabi wants out of Citigroup purchase

Posted Dec 16th 2009 10:30AM by Mark Fightmaster
Filed under: Citigroup Inc. (C)

This morning, Bloomberg reported that the Abu Dhabi Investment Authority is attempting to get out of an agreement to purchase $7.5 billion of Citigroup (C) stock. According to the deal, the Investment Authority (ADIA) is to pay eight times Citi's current price. If the deal is forced through, it is seeking more than $4 billion in damages as it claims that Citi used "fraudulent misrepresentations" and misled it about the investment. Citi disputes the claims, noting they have no merit.

According to the report, ADIA invested in Citi in November 2007, getting equity units that could be swapped into common stock for $31.83 per share to $37.24 per share from 2010. On Tuesday, shares of Citi closed at $3.56 per share. Bottom line, ADIA is trying to avoid major losses in light of its agreement (made earlier this week) to provide $10 billion to Dubai World to prevent a bond default.

Basically, ADIA is trying to recoup some money that it planned to use but now can't. As Ralph Silva told Bloomberg, "ADIA's chances of winning the case are slim to none." Eric Barden from Barden Capital Management in Austin, Texas told Bloomberg that ADIA is "pushing the limit in terms of how much they think Citigroup is willing to subsidize a mistaken investment."

Should Citigroup be held accountable for the bad investment? Perhaps you think so, but that would open up a whole can of worms that no one in the market wants to see. If ADIA gets its refund, does it entitle everyone who invested in Citigroup two years ago to a refund? If so, who pays for the refunds? Like I said, this is a can of worms that Wall Street does not want opened.

Tags: Abu Dhabi, ADIA, c, citigroup, Dubai World, featured, inthenews