Bank of America Corp. says it has agreed to swap about $50 billion in stock for Merrill Lynch & Company Inc.
“The price is 1.8 times stated tangible book value,” according to Bank of America, Charlotte, N.C.
The deal agreement calls for 3 Merrill Lynch directors to join the Bank of America board.
Bank of America expects to cut about $7 billion at the combined companies by 2012, the company says.
The directors of both companies already have approved the deal.
The companies hope to get shareholder approvals, and the regulatory approvals needed to complete the deal, by March 31, 2009, the companies say.
The combined company would start with 16,000 advisors from Merrill Lynch and 4,000 from Bank of America.
Bank of America generated about $65 million in non-annuity insurance brokerage fee income in the first quarter, according to Michael White Associates L.L.C., Radnor, Pa.
Bank of America generated about $475 million in mutual fund and annuity fee income during the first quarter, and about $30 million in annuity commissions, Michael White reports.
Merrill Lynch and affiliates have been managing about $1.4 trillion in client assets, and Bank of America has been managing about $589 billion in client assets.
Merrill Lynch once owned a pair of life insurance company subsidiaries, Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York. Merrill Lynch sold those companies to AEGON N.V., The Hague, Netherlands, in 2007.
Merrill Lynch notes in its latest quarterly report that its global wealth management unit continues to sell insurance products, retirement services, and trust and generational planning services to small businesses, midsize businesses, employee benefit plans and wealthy individuals.
The Chicago office of Fitch Ratings, which has assigned an A plus long-term issuer default rating to Merrill Lynch, says it is changed the “Rating Watch” status of the rating to Evolving, from Negative.
Fitch also has affirmed the A plus long-term issuer default rating it has assigned to Bank of America.
“The acquisition of Merrill Lynch allays funding and capital raising concerns in this unsettled environment,” Fitch says in an explanation of the change in the way it is looking at Merrill Lynch.
Depending on how the Bank of America combination works, Merrill Lynch and its affiliates could get a 1-notch rating upgrade, Fitch says.
“Fitch is affirming the present ratings of Bank of America and its affiliates,” the firm says. “The acquisition of Merrill’s global franchise in all stock transaction is positive while asset valuations and business conditions remain uncertain for the near future.
There is some element of risk involved in the deal, given given current market conditions, but “this risk is minimal compared to the benefits of enhanced market confidence and market access that this transaction provides to Merrill,” Fitch says.
Bank of America’s managers are experienced in conducting complex acquisitions and have shown that they continue to have good access to the capital markets in the current distressed environment, Fitch says.
“Additional actions taken recently by regulators, such as relaxation on restrictions between intracompany transactions and expanded liquidity facilities should provide both entities with flexibility to navigate the current market turmoil,” Fitch says.
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