Bank of America snatches Merrill Lynch in all-stock deal

Washington and New York – Bank of America has agreed to buy Merrill Lynch in an all-stock deal worth $50 billion (N$401 billion), snagging the world’s largest retail brokerage after one of the worst weekends on Wall Street.

The deal came after tense negotiations over the fate of Lehman Brothers, which triggered concern that market participants would lose faith in other investment banks. Lehman said it would file for chapter 11 bankruptcy protection.”It catapults Bank of America into positions of strength in three businesses where they were weak,” said James Ellman, a 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,” said Ellman.Bank of America agreed to pay 0.8595 share of its common stock for each Merrill share.The price is 1.8 times stated tangible book value.The bank is buying about $44 billion of Merrill’s common shares, as well as $6 billion of options, convertibles and restricted stock units.Bank of America said it expected to achieve $7 billion in pretax expense savings, fully realised by 2012.It expected 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 $29 a share, represents a 70 per cent premium to Merrill’s share price on Friday, although Merrill shares were trading at $50 in May and more than $90 at the beginning of last year.The deal has been approved by the directors of both firms.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 written down more than $40 billion over the past year.In spite of its exposure to complex debt securities, some saw the bank as undervalued, partly because of its massive brokerage business, which analysts have said is worth more than $25 billion.Merrill also has a stake of about 45 percent in asset manager BlackRock, worth more than $10 billion.Business ReportLehman said it would file for chapter 11 bankruptcy protection.”It catapults Bank of America into positions of strength in three businesses where they were weak,” said James Ellman, a 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,” said Ellman.Bank of America agreed to pay 0.8595 share of its common stock for each Merrill share.The price is 1.8 times stated tangible book value.The bank is buying about $44 billion of Merrill’s common shares, as well as $6 billion of options, convertibles and restricted stock units.Bank of America said it expected to achieve $7 billion in pretax expense savings, fully realised by 2012.It expected 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 $29 a share, represents a 70 per cent premium to Merrill’s share price on Friday, although Merrill shares were trading at $50 in May and more than $90 at the beginning of last year.The deal has been approved by the directors of both firms.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 written down more than $40 billion over the past year.In spite of its exposure to complex debt securities, some saw the bank as undervalued, partly because of its massive brokerage business, which analysts have said is worth more than $25 billion.Merrill also has a stake of about 45 percent in asset manager BlackRock, worth more than $10 billion.Business Report

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