Financial Post: Merrill Lynch sold to Bank of America?

[Slimprofits]

Eoin Callan in Toronto, Janet Whitman in Lower Manhattan, and Duncan Mavin in Hong Kong, Financial Post

Published: Sunday, September 14, 2008

Talks between Bank of America and Merrill were triggered on Saturday night and expected to continue today about a deal that would see the $150 billion commercial bank absorb the investment bank led by Mr. Thain.

A deal would mean that after creating scale through a series or record-breaking acqusitions, Bank of America will be able to buy the place it has long coveted in the inner circle of investment firms.

The behmoth a transaction would create would likely be one of the dominant institutions on Wall Street and be one of the most significant corporate combinations to emerge from the credit crisis.

[jk]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Bank of America Buys Merrill For $29 a Share


Talk about a shotgun wedding. From the Wall Street Journal (hat tip reader Saboor):

In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter...

A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago.....

Yves here. Ahem, does anyone now think the value a year ago represented the real value of the firm?

"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."....

A deal would be all the more dramatic because Merrill, upon the arrival of Chief Executive John Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg. That Merrill has opted to sell itself thus underscores the severity of crisis....

As of Sunday evening, a deal had not yet been signed....Yet with news of the Bank of America talks breaking Sunday, it became all the more difficult for Merrill and Mr. Thain to rebuff a deal. Should the talks collapse, most on the Street were expecting Merrill's shares to fall even further amid widespread worries about independent broker-dealers.....

"I think John Thain at Merrill is the ultimate realist," Ms. Bush said, the analyst, who expected federal regulators to bless the deal by relaxing deposit limits for bank-holding companies. "He knows if Lehman goes under he is not far behind. He wants to cut the best deal he can."

As we have said often, publicly-held investment banks are a bad business model, and the loss today of two once proud firms is testament to the idea of taking what might have seemed a good idea beyond its point of maximum advantage.

http://www.nakedcapitalism.com/

[grapejelly]

Re: Financial Post: Merrill Lynch sold to Bank of America?

It would also show how the credit crisis has created opportunities for cough cough financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago.....

ahem. Yes indeedy.

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Bank of America Buys Merrill For $29 a Share


Talk about a shotgun wedding. From the Wall Street Journal (hat tip reader Saboor):

In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter...

A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago.....

Yves here. Ahem, does anyone now think the value a year ago represented the real value of the firm?

"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."....

A deal would be all the more dramatic because Merrill, upon the arrival of Chief Executive John Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg. That Merrill has opted to sell itself thus underscores the severity of crisis....

As of Sunday evening, a deal had not yet been signed....Yet with news of the Bank of America talks breaking Sunday, it became all the more difficult for Merrill and Mr. Thain to rebuff a deal. Should the talks collapse, most on the Street were expecting Merrill's shares to fall even further amid widespread worries about independent broker-dealers.....

"I think John Thain at Merrill is the ultimate realist," Ms. Bush said, the analyst, who expected federal regulators to bless the deal by relaxing deposit limits for bank-holding companies. "He knows if Lehman goes under he is not far behind. He wants to cut the best deal he can."

As we have said often, publicly-held investment banks are a bad business model, and the loss today of two once proud firms is testament to the idea of taking what might have seemed a good idea beyond its point of maximum advantage.

http://www.nakedcapitalism.com/

"I think John Thain at Merrill is the ultimate realist,"

I think John Thain must be a hell of a negotiator. One really has to wonder what Ken Lewis was thinking to agree to a 70% premium over Friday's closing price, after a weekend of due diligence? Wonder what his Board will think of that. Especially after they overpaid for Countrywide...

Something else going on behind the Fed/Treasury veil that isn't visible to the public???

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

"I think John Thain at Merrill is the ultimate realist,"

I think John Thain must be a hell of a negotiator. One really has to wonder what Ken Lewis was thinking to agree to a 70% premium over Friday's closing price, after a weekend of due diligence? Wonder what his Board will think of that. Especially after they overpaid for Countrywide...

Something else going on behind the Fed/Treasury veil that isn't visible to the public???

Barry Ritholtz this morning, on Bank of America/Merrill [commenting on an interview on Bubblevision]:

"...Vince Farrell says Bank of America is not stupid. He's wrong, their management has made some rather stupid moves -- how about their purchase of Countrywide? That was $4 billion worth of dumb..."

Couldn't agree more. I've been involved in a few oil and gas deals, for amounts that were peanut crumbs compared to this, and the due diligence we did went on for several weeks.

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Barry Ritholtz this morning, on Bank of America/Merrill [commenting on an interview on Bubblevision]:

"...Vince Farrell says Bank of America is not stupid. He's wrong, their management has made some rather stupid moves -- how about their purchase of Countrywide? That was $4 billion worth of dumb..."

Couldn't agree more. I've been involved in a few oil and gas deals, for amounts that were peanut crumbs compared to this, and the due diligence we did went on for several weeks.

Here's one of the things that could come back to bite Ken Lewis and BAC's shareholders. Ironically enough, it's a BAC analyst being quoted raising the red flag. Wonder if said analyst will get a bonus, or get his azz fired, if he's right?

Merrill CDO sale not as good as it looks: analyst

Wed Jul 30, 2008 10:59am EDT
NEW YORK (Reuters) - Merrill Lynch's agreement to sell $30.6 billion of toxic securities gives away the bank's potential profits on the securities and leaves it on the hook for most of the risk, strategists at Bank of America wrote on Wednesday.

Merrill Lynch & Co Inc has financed 75 percent of the sale of the securities, meaning it is on the hook if the assets decline by more than 5 cents on the dollar, Bank of America strategist Jeffrey Rosenberg wrote.

Merrill agreed earlier this week to sell the $30.6 billion portfolio of collateralized debt obligations to private equity firm Lone Star Funds for 22 cents on the dollar, or $6.7 billion...
More...

[c1ue]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Actually, due diligence might not be as necessary as you think.

As Countrywide is showing, just because you agreed to buy the institution, doesn't mean you're agreeing to take on the bad debt.

I'm guessing BofA just dusted off the same agreement forced on CFC - i.e. we'll buy but we'll 'ring fence' the good assets and leave the rest to wither on the vine.

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Actually, due diligence might not be as necessary as you think.

As Countrywide is showing, just because you agreed to buy the institution, doesn't mean you're agreeing to take on the bad debt.

I'm guessing BofA just dusted off the same agreement forced on CFC - i.e. we'll buy but we'll 'ring fence' the good assets and leave the rest to wither on the vine.

We are all going to see how good their in-house corporate lawers are. The Board is obviously being told that they can "ring-fence" this stuff and they can provision for, and ultimately survive, the inevitable litigation.

But I doubt they can successfully ring fence and isolate themselves from a clear deal liability like the CDO sale. And as far as I can tell, when you buy the whole firm you are taking on the whole package, you don't get to pick and choose the assets after closing.

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Here's one of the things that could come back to bite Ken Lewis and BAC's shareholders. Ironically enough, it's a BAC analyst being quoted raising the red flag. Wonder if said analyst will get a bonus, or get his azz fired, if he's right?

Merrill CDO sale not as good as it looks: analyst

Wed Jul 30, 2008 10:59am EDT
NEW YORK (Reuters) - Merrill Lynch's agreement to sell $30.6 billion of toxic securities gives away the bank's potential profits on the securities and leaves it on the hook for most of the risk, strategists at Bank of America wrote on Wednesday.

Merrill Lynch & Co Inc has financed 75 percent of the sale of the securities, meaning it is on the hook if the assets decline by more than 5 cents on the dollar, Bank of America strategist Jeffrey Rosenberg wrote.

Merrill agreed earlier this week to sell the $30.6 billion portfolio of collateralized debt obligations to private equity firm Lone Star Funds for 22 cents on the dollar, or $6.7 billion...
More...

The more accolades I hear for BAC this morning, the more this deal reminds me of:

$9.5 Billion Deal Creates Finance Giant

By Mitchell Martin

Published: THURSDAY, SEPTEMBER 25, 1997

NEW YORK: Extending a wave of consolidations on Wall Street, Travelers Group Inc. said Wednesday it would acquire the bond-trading powerhouse Salomon Brothers Inc. for about dollars 9.5 billion in stock.

Salomon, whose strengths are in institutional finance and trading strategies that risk its own cash, would be merged with Travelers' more staid Smith Barney Holdings Inc. brokerage house to form Salomon Smith Barney Holdings Inc.
The companies said the combined concern would be the third-largest underwriter of stock issues and the second-largest underwriter of U.S. bonds, based on 1996 data. But the deal is more notable for the way it links each company's strong points than for the absolute size of the resulting operations.

There has been a wave of consolidation in the American financial-services industry this year. One recent amalgamation was the takeover of Morgan Stanley Inc., which like Salomon had a strong international institutional business, by Dean Witter, Discover & Co., which like Smith Barney, had significant retail operations...

...Travelers has been built up from the financial-services divisions of what had been American Can by its chairman, Sanford Weill. Many of Salomon's operations are complementary to those of Smith Barney, especially its international institutional finance and bond-trading capabilities, according to Perrin Long, an independent securities-industry analyst in Darien, Connecticut. He said the deal was "a good fit for Travelers and particularly for Salomon Brothers."...

Which was followed not long after by this:

Citicorp and Travelers Plan to Merge in Record $70 Billion Deal : A New No. 1:Financial Giants Unite


By Mitchell Martin
Published: TUESDAY, APRIL 7, 1998
NEW YORK: Citicorp and Travelers Group said Monday they would merge in the largest corporate combination ever, creating the world's biggest financial-services company and offering banking, insurance and investment operations in 100 countries.

The companies described the deal as a merger, valuing it at $140 billion, but the mechanism is essentially a stock swap, with Travelers paying $70 billion for Citi's shares...

...Travelers will issue 2.5 shares for each Citicorp share, and current stockholders of each company will own about half of the new enterprise.

With $698 billion of assets, the merged enterprise would be the largest financial-services company in the world, slightly larger than Bank of Tokyo-Mitsubishi. The new company, to be called Citigroup, would also be by far the most valuable in the business, with a market capitalization of about $135 billion...

...Sanford Weill, the Travelers chairman, said he expected the Fed to quickly approve his company's application to become a bank holding company and added: "I don't think we have to spin anything off to make this happen."...

Funny thing is I am hearing many of the same benefits [for the BAC/Merrill deal] being parroted by the commentators this morning...:rolleyes:

[sishya]

Re: Financial Post: Merrill Lynch sold to Bank of America?

I don not have any insider information but I smell something fish in this Mr. BofA engagement with Ms. Merrill. The press reports says that the marriage will take place only after 4 months of courtship. Also Mr. BofA is paying a big dowry to buy Ms. Merrill at a premium price($30 ? well above it's stock price) even though she has been missing a few teeth and experiences bouts of depression.

At the same time I read the Fed is going to accept equities as collateral to give money to banks to be recapitalized. Now I suspect one of two things

1) This marriage will not take place. The ploy is just to allow Merrill stock to go up and then to enable the Fed to help Merrill. Ms. Merill will be dumped before 4 months by Mr. BofA.

or

(2) The marriage will take place, but BofA will not be reponsible for Merrill's bad loans snd it's creditors ie it will take only it's good part.That is why I think the premium paid over the current market price.

If I am wrong, then any share holder of BofA should feel outraged over this bad buy. All this trick is being done so that in an Election year the authorities do not want the Public to feel that they are favoring the money lenders over common man by a bailout(aka JP Morgan money supply)

[Honzajs119]

Re: Financial Post: Merrill Lynch sold to Bank of America?

I don not have any insider information but I smell something fish in this Mr. BofA engagement with Ms. Merrill. The press reports says that the marriage will take place only after 4 months of courtship. Also Mr. BofA is paying a big dowry to buy Ms. Merrill at a premium price($30 ? well above it's stock price) even though she has been missing a few teeth and experiences bouts of depression.

At the same time I read the Fed is going to accept equities as collateral to give money to banks to be recapitalized. Now I suspect one of two things

1) This marriage will not take place. The ploy is just to allow Merrill stock to go up and then to enable the Fed to help Merrill. Ms. Merill will be dumped before 4 months by Mr. BofA.

or

(2) The marriage will take place, but BofA will not be reponsible for Merrill's bad loans snd it's creditors ie it will take only it's good part.That is why I think the premium paid over the current market price.

If I am wrong, then any share holder of BofA should feel outraged over this bad buy. All this trick is being done so that in an Election year the authorities do not want the Public to feel that they are favoring the money lenders over common man by a bailout(aka JP Morgan money supply)

I agree. MER takeover looks suspicious to me as well. No due diligence, just few hours spent.
Either they discussed such possibility much earlier nor some kind of "order" was to to arrange merger to provide markets with some positive news. If it is true, than merger will be canceled in he future when situation will be not so dramatic.

Market does not accept merger as 100% deal. Otherwise, share price of MER would be much more closer to 29.

[Supercilious]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Is this a real cash transaction or only shares exchange? Anyway if it happens is supposed to happen inf Q1 2009 .

There is no actual buyout only a soothing show of smoke and mirrors. Or am I missing something?

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Is this a real cash transaction or only shares exchange? Anyway if it happens is supposed to happen inf Q1 2009 .

There is no actual buyout only a soothing show of smoke and mirrors. Or am I missing something?

Okay, I take it all back. Ken Lewis and Bank of America are brilliant. They will get Merrill cheap after all. After bidding 70% above MER's closing price on Friday, MER closes up...wait for it...a whole $0.01 today. LOL

It's an all stock deal, and observing today's market action it's clear their strategy is to drive BAC stock down to nothing, thereby stealing Merrill from its current shareholders... :rolleyes:

[Supercilious]

Re: Financial Post: Merrill Lynch sold to Bank of America?

Okay, I take it all back. Ken Lewis and Bank of America are brilliant. They will get Merrill cheap after all.

It's an all stock deal, and observing today's market action it's clear their strategy is to drive BAC stock down to nothing, thereby stealing Merrill from its current shareholders... :rolleyes:

You see that understanding financials is not so difficult ?

It's just important to figure out that Wall Street is full of crooks and scam artists. The correct fundamentals become immediately obvious and reliable.

From time to time I check the free discussion groups on google and other places like that, to take the pulse of the market in the lower sectors of expertise.

You just don't know how many investors were jubilating today for having the chance of buying MER shares at $22, but they were stunned to see that the price was not going up ... you know ... at $29 as announced on the internet pipes.

Actually it wasn't even very funny. Some people are incapable to understand there is no free lunch in life and nobody is waiting for them to click on e-trade screens to make them rich. Geeee.....

[GRG55]

Re: Financial Post: Merrill Lynch sold to Bank of America?

You see that understanding financials is not so difficult ?

It's just important to figure out that Wall Street is full of crooks and scam artists. The correct fundamentals become immediately obvious and reliable.

From time to time I check the free discussion groups on google and other places like that, to take the pulse of the market in the lower sectors of expertise.

You just don't know how many investors were jubilating today for having the chance of buying MER shares at $22, but they were stunned to see that the price was not going up ... you know ... at $29 as announced on the internet pipes.

Actually it wasn't even very funny. Some people are incapable to understand there is no free lunch in life and nobody is waiting for them to click on e-trade screens to make them rich. Geeee.....

Part II is the LBO wherein they then steal BAC cheap from its shareholders...:eek: