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The Wall Street Journal's 'Heard on the Street' column (subscription required) thinks that Bank of America (NYSE: BAC) is overpaying for Merrill Lynch (NYSE: MER).
But here's where it gets interesting: because it's an all-stock deal scheduled to close in the first quarter of 2009, the more bearish Wall Street is on the deal, the less Bank of America will pay! When it was first announced, the deal was thought to pay Merrill shareholders a significant premium. But by the end of trading on Monday, shares of Merrill were trading at $17.06, essentially flat for the day and just 46 cents above the stock's lowest point since 1996. That's because Bank of America's stock tanked about 20% on the day.
But the Journal points out that the deal was agreed to in haste, and adds that "Mr. Lewis has the business he wanted: Merrill's private-client operation, which Sanford Bernstein estimates is valued at $26.7 billion. But assume Merrill's BlackRock stake is valued at $14 billion, and BofA's original price implied almost $10 billion for the risky investment bank. Given the precarious environment, Mr. Lewis has paid too generous a price."
There are also questions about how achievable Bank of America's projections of cost savings are.
Much of how the acquisition pans out will likely depend on as yet unpredictable macroeconomic factors but, for now, I'll cast my lot with the skeptics. Big acquisitions rarely pan out, and estimates of synergy are nearly always too optimistic.
WSJ says Bank of America overpaid for Merrill Lynch
Posted Sep 16th 2008 7:45AM by Zac Bissonnette
Filed under: Deals, Bank of America (BAC), Merrill Lynch (MER)
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Reader Comments (Page 1 of 1)
9-17-2008 @ 7:07AM
Richard Brill said...
Its not what BAC payed for Merrill, which was a deep discount, Its what it worth to them.
This was the greatest deal of the century!
A Merrill Lynch in every Bank America Branch
Plus trillions in assets...Ho, ho, ho,....
9-16-2008 @ 5:44PM
Deano said...
I won't be shedding any tears. For generations these outfits have worked to line their coffers with little or no regard for people. They've foreclosed on businesses, chucked people out of their homes, refused to help those in need. Oh, all in the name of 'good business' mind ...
I'm pleased they're going bust, and I'd like to think the guy responsible for ordering the reposession of homes gets fired first.
The only sad thing about it is that this lot will be replaced by another lot who's aim is much the same. That'll be the way of the world until Joe Public finally realises that banks aren't worth more than a place to lose your savings.
Governments should run a 'hole-in-the-wall' system, where despositors can store their wealth safely, free of charge, and withdraw at will, safe in the knowledge that their money will STAY there; un-invested, un-index-linked, un-interest applicable.
Then, perhaps, money will be safe.
D
9-16-2008 @ 11:02AM
AB said...
The media again is mouthing off --what do they know. Between the election coverage and the financial world the media including WSJ should keep their mouth shut and stop causing more trouble!!!!
9-16-2008 @ 10:43AM
Dan Barnett said...
Hey Deano,
You want interest on your money?
You want to be able to write a check?
You want to be able to access your money out of town?
The money IN the banks is (are?) safe. It is insured by the FDIC. Investing IN BANKS, that is owning part of the bank, is what has proven so unprofitable.
So Zac, we're supposed to be happy 'cause as our BAC stock tanks, we're paying less for Merrill? Sir, you are a true optimist.
9-16-2008 @ 2:25PM
arthur lee davis said...
If its growth has not peaked. The question now would be continue those pie in the sky acquisitions, especially any that comes close to another Countrywide.Or core substantiating their previous plans for a blitz of BofA`s all across America in small towns, supermakets, whereby each city large or small would have atleast one of their brand. Those to me a lay person seemed liken to a company that would bore success in their future pattern of growth.
9-16-2008 @ 8:42PM
William Brenner said...
Not a bad idea Why not make deposits with no limit insurance at the Post Office? The interest rate would be nominal. Half that of the Fed rate to banks. Only individuals could use this service not corporations or foreigners. Maybe people with green cards OK. The interest would be tax exempt. It would be like buying a Government bond since the Federal Govt would be flush with cash. If you want higher returns. Then go to an FDIC insured bank. Higher still you're on your own. More interest more risk.