Merrill Lynch sold

Tuesday September 16, 2008

Bank of America offers US$50bil in all-stock deal

WASHINGTON/NEW YORK: Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth US$50bil, snagging the world’s largest retail brokerage after one of the worst ever weekends on Wall Street.

The deal came after tense negotiations over the fate of Lehman Brothers Holdings Inc, which triggered concern that market participants would lose faith in other investment banks.

”It catapults Bank of America into positions of strength in three businesses where they were weak,” said James Ellman, portfolio manager at hedge fund Seacliff Capital.

”Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world,” Ellman said.

Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.

The bank is buying about US$44bil of Merrill’s common shares, as well as US$6bil of options, convertibles, and restricted stock units.

Bank of America said it expected to achieve US$7bil in pre-tax expense savings, fully realised by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.

The price, which comes to about US$29 per share, represents a 70% premium to Merrill’s share price on Friday, although Merrill’s shares were trading at US$50 in May and over US$90 at the beginning of January 2007.

The deal has been approved by directors of both companies. Three Merrill directors will join the Bank of America board.

Stuck with some of the same toxic debt – much of it mortgage-related – that torpedoed Lehman’s balance sheet, Merrill has been hit hard by the credit crisis and has written down more than US$40bil over the last year.

Last month, Thain arranged to sell over US$30bil in repackaged debt securities to Dallas-based private equity firm Lone Star Funds for 22 cents on the dollar.

In spite of its exposures to complex debt securities, the bank had been seen by some as undervalued, in part because of its massive brokerage business, which analysts have said is worth more than US$25bil. The brokerage is the largest in the world by assets under management and number of brokers.

Merrill also has a stake of about 45% in the profitable asset manager BlackRock Inc, worth more than US$10bil.

But this is not the first time Bank of America has done a quick acquisition. In 2005, the bank bought credit card company MBNA after less than a week of due diligence.

Bank of America has spent over US$100bil since 2004 buying other companies.

Most recently, it acquired troubled mortgage lender Countrywide Financial Corp. – Reuters

http://thestar.com.my/news/story.asp?file=/2008/9/16/business/2033806&sec=business