Merrill – Bank of America deal
It has now been confirmed that Bank of America has bought Merrill Lynch for $44 billion.
Originally, Bank of America had been in the running to buy Lehman Brothers but balked at Lehman’s black hole of a balance sheet. The U.S. Government was offering no backstop for a Lehman purchase as it had for Bear Stearns.
Merrill shrewdly dialed up Bank of America, in fear for their own continued existence. They have been able to strike a deal – and at a decent price. Notch one up for John Thain.
Bank of America made a big mistake in buying Countrywide Financial — one that they will regret for years. Buying Lehman Brothers would have been even more disastrous given their exposure to Commercial Real Estate. But, this deal is good for several reasons. It is better for Merrill than BoA though, as it is a premium to book value and the current stock price.