Bank of America Corp. has announced that it will acquire Merrill Lynch as part of an all-stock deal that is valued around $50 billion. The announcement brings to an end the uncertainty about Merrill Lynch that has been like a dark cloud over the brokerage since the start of the credit crisis more than a year ago.
Charlotte, North Carolina based Bank of America (BankAm) has the highest deposits as compared to any bank in the US, while Merrill Lynch & Co is amongst the largest and widely recognised brokerage houses.
The acquisition of Merrill Lynch by BankAm is poised to give birth to a global financial services juggernaut that will have a finger in possibly every financial services pie, including fixed-income trading, stock underwriting, and credit card lending. The combined entity would rival Citi, the largest bank in the US in terms of assets.
In a press release, BankAm chairman and CEO Ken Lewis said, "Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders. Together, our companies are more valuable because of the synergies in our businesses."
The statement also clarified that Bank of America would exchange 0.8595 shares of its own common stock for each common share of Merrill Lynch, valuing Merrill Lynch at $29 per share, marking a 70 per cent premium to the weekend closing price of $17.05 on Friday. In early 2007, Merrill Lynch shares were trading over $98.
BankAm said it expects the acquisition to close around the first quarter of 2009. Its statement also said that the deal had the approval of the directors of the companies, and was subject to the usual regulatory approvals, and shareholder approval. Three directors of Merrill Lynch will join BankAm's board of directors.
In a release, chairman and CEO of Merrill Lynch, John Thain said, "Merrill Lynch is a great global franchise and I look forward to working with Ken Lewis and our senior management teams to create what will be the leading financial institution in the world with the combination of these two firms."
Analyst are calling the deal 'a good fit', which will allow BankAm to offer Merrill Lynch's retail broking services to its massive customer base, and would strengthen its investment banking portfolio, which though in existence, could use strengthening. They also point out that the two firms do not have too much of overlapping functions, though there could be some layoffs. Over the past year, both firms have reduced investment banking jobs.
Merrill Lynch has been combating the credit crises with billions of dollars tied up in assets linked with mortgages that plummeted in value, and has reported four straight quarterly losses.
Earlier in the year, JPMorgan Chase & Co. had bought out Bear Stearns in March. However, Bear Stearns went at a hugely discounted price. In BankAm – Merrill Lynch case, though Merrill Lynch is carrying the substantial weight of soured real estate exposure, its financial position is much better than what Bear Stearns' was.
The deal was ostensibly driven by federal officials, including Federal Reserve Bank of New York president Timothy Geithner, who worried that Merrill Lynch could be the next victim, with Lehman Brothers approaching bankruptcy fast.