The United States’ largest bank, Bank of America Corp., has agreed to acquire Merrill Lynch for approximately $50 billion. Based on current values, the transaction contemplates Bank of America paying approximately $29/share, in stock, for Merrill Lynch. This is a 70% premium above Merrill’s most recent closing price. Under the deal, each share of Merrill stock would be exchanged for .8595 shares of Bank of America stock. The ultimate value to Merrill Lynch shareholders will be dependent upon the price of Bank of America stock when the transaction closes. It is contemplated that the deal will close sometime in early 2009.
The deal provides substantial benefits to Bank of America. Bank of America will gain over 61,900 employees including 16,000 brokers who manage excess of $1.56 trillion of assets for customers. Bank of America will also be gaining Merrill’s premiere wealth management unit as well as its capital markets and advisory subsidiaries.
On the negative side, Bank of America must deal with Merrill’s continuing subprime and credit crisis problems. Many of Merrill’s assets are hard to value and the full extent of its problems are undetermined. Similarly, Bank of America will have to decide what to do with Merrill’s 61,900 employees. It is natural to expect there will be some significant pruning of employees as the two firms combine operations.
The Merrill acquisition continues a series of major acquisitions that Bank of America has made in recent years. The bank has previously acquired Countrywide Financial Corporation, MBNA Corp., Fleet First Boston, and US Trust Corp., among others.
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