Wall Street is not what it used to be, for good or ill. Culminating (at least for the moment) a months-long period of market volatility and uncertainty spawned by the credit/housing crisis and punctuated by a Federal government-engineered bailout of Bear Stearns at the end of March and a Federal takeover of Fannie Mae and Freddie Mac on Sep. 7, on Sep. 15 two marquee names in financial services ceased to exist.
Following a busy weekend in New York in which various government and corporate enterprises worked to shore up multiple corporate linchpins in the American financial system, Bank of America announced on Monday, Sep. 15 that it would acquire Merrill Lynch & Co. for $50 billion in stock, a deal that would create the largest brokerage firm in the world, with some 20,000 brokers (assuming they all have jobs once the transaction closes in the first quarter of 2009), and $2.5 trillion in client assets. The acquisition includes Merrill’s 50% stake in BlackRock.
In a conference call with reporters from New York on Sep. 15, Bank of America Chairman and CEO Ken Lewis said the acquisition of Merrill Lynch is “the strategic deal of a lifetime.” Lewis further said that the 16,000 Merrill brokers were the “crown jewel of the company,” and that they “better get ready for a lot of referrals” from B of A’s private client group.
Merrill Lynch Chairman and CEO John Thain answered a question about whether Merrill had approached any other suitors by saying, “I did not make any other phone calls.” Under the deal, Bank of America would exchange 0.8595 shares of its common stock for each share of Merrill common, a price 1.8 times stated tangible book value. B of A said it expected to achieve $7 billion in pretax expense savings, and that the deal will be accretive to earnings by 2010.
At the press conference, Lewis said Bank of America would still be headquartered in Charlotte, North Carolina and that its investment banking operations would remain based in New York. However, it was not announced who will run the combined operation.
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