Bank of America Corporation has agreed to acquire Merrill Lynch in a $50 billion all-stock transaction, a deal predicted by industry expert Chip Roame in June as part of Research magazine's 30th-anniversary issue.
"My guess is that Merrill Lynch is no longer a stand-alone entity. It's been bought by a bank," shared Roame, when asked about his predictions for the next 30 years. "I would find it highly unlikely that Merrill Lynch as a company, including the trading business and the investment bank, could be bought by any organization other than a bank."
This prediction has come to pass less than four months after it was made by the head of Tiburon Strategic Advisors.
In early August, equity analyst Richard Bove pointed out some of his deep concerns about Merrill Lynch: "The company's pronouncements of late do not seem to meet with its actions … any of the firm's statements concerning its balance sheet over the past year have simply not [been] matched with subsequent actions by the company."
Overall, Merrill has had after-tax losses of $14 billion related to almost $52 billion in write-downs and credit-related losses, according to an early September issue of the Financial Times. These 18-month losses amount to about a 25 percent of the $56 billion in profits made in Merrill's 36 years as a public company, according to newspaper.
In late July, Merrill sold some $31 billion in collateralized-debt obligations to Lone Star at a discount price of 23 cents on the dollar, taking the CDOs off of Mother Merrill's balance sheet.
As shares of Lehman Brothers and other firms collapsed in mid-2008, it appears that Merrill Lynch Chairman and CEO opted to sell its assets and then the firm rather than face the wrath of the markets, Bove and others said.
BofA seemed poised to help.
"It should be noted that in two decades of making acquisitions, Ken Lewis, CEO of Bank of America, has not made many mistakes, if any," wrote Bove in July. "He has been tasked with the need to make just about anything his predecessor bought profitable, and he did it. Betting against Lewis' skills on a financial acquisition has always been wrong."
"Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," says Lewis in a statement. "Together, our companies are more valuable because of the synergies in our businesses."
"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," says Thain.
Merrill Lynch has more than 16,500 financial advisors worldwide, giving Bank of America the largest brokerage in the world with more than 20,000 advisors and $2.5 trillion in client assets.
The combination brings global scale in investment management to the bank, including some 50 percent ownership in BlackRock, which has $1.4 trillion in assets under management. Bank of America has $589 billion in assets under management.
Under terms of the transaction, Bank of America would exchange .8595 shares of Bank of America common stock for each Merrill Lynch common share. The price is 1.8 times stated tangible book value. Bank of America expects to achieve $7 billion in pretax expense savings, fully realized by 2012. The acquisition is expected to be accretive to earnings by 2010.
The transaction is expected to close in the first quarter of 2009. It has been approved by directors of both companies and is subject to shareholder votes at both companies and standard regulatory approvals.
1907: Charles Merrill arrives in New York to work for a textile company. He meets Edmund Lynch, who is looking for someone to share his boarding-house room at the 23rd Street YMCA. Both men were born in 1885.
1914: Charles E Merrill & Co opens its doors in January. Lynch joins him, and in May they open an office at 7 Wall Street in downtown Manhattan.
1915: The firm changes its name to Merrill, Lynch & Co. An associate notices a difference between the partners: "Merrill could imagine the possibilities; Lynch imagined what might go wrong in a malevolent world."
1938: Edmund Lynch dies. Merrill Lynch drops the comma from its name.
1956: Merrill helps take Ford Motor Co public, giving the firm its first billion-dollar year in underwriting. The same year, Charles Merrill dies.
1958: Firm changes its name to Merrill Lynch, Pierce, Fenner & Smith.
1960: Merrill opens its first London office. Four years later, it opens its first Tokyo office.
1964: Merrill buys C.J. Devine, becoming a dealer in fixed-income securities.
1971: Merrill goes public and lists on the New York Stock Exchange.
1976: Merrill creates Merrill Lynch Asset Management.
1999: Merrill is world's largest underwriter of stocks and bonds for the last time, a title it cedes the next year to Citigroup Inc.
2001: Most of Merrill's 9,000 Wall Street employees evacuate their offices opposite the World Trade Center during the 9/11 attacks. Three die.
Dec 2002: Merrill reaches $100 million settlement with New York Attorney General Eliot Spitzer over alleged conflicts of interest by research analysts. The same month, it names Stanley O'Neal chief executive. He becomes chairman in April 2003.
2006: Merrill adds billions of dollars of mortgages to its balance sheet. It acquires First Franklin Financial Corp, a subprime mortgage lender owned by National City Corp.
Oct 2007: Merrill ousts Stanley O'Neal as chairman and chief executive as mortgage losses begin to mount, and after O'Neal approaches Wachovia Corp about a merger without telling the board. John Thain, chief executive of NYSE Euronext, is named his replacement as of Dec 1.
2008: Losses top $19.2 billion in the year ended June 30, as credit losses $40 billion. Merrill scrambles to raise capital from sovereign wealth funds and other investors, and sell risky assets.
Sept 15, 2008: Merrill agrees to be acquired by Bank of America for $29 per share.
Source: Reuters, Company Reports