Parsing Bank of America: Crisis Is Our Friend

For all the angst on Wall Street today, BofA's famously grind-stoning Ken Lewis demonstrated his version of giddiness at today's press conference, reminding us that he's been stalking Merrill for years. And when you're dealing from a position of relative strength, and when you know exactly what you want, a nice crisis can actually be very helpful in allowing you to execute your strategy at a significant discount.

But did BofA over-pay?

Probably not, given that Lewis has been studying Merrill for years, and he undoubtedly knew exactly what numbers were required for BofA to secure an acceptable bargain. While he could have tried to exploit the inevitable Monday morning slide of Merrill's stock, Lewis clearly didn't want to let short-term greed potentially derail BofA's long-term ambitions.

Here's the parse of the joint statement.

BoA: Bank of America Corporation today announced it has agreed to acquire Merrill Lynch & Co., Inc. in a $50 billion all-stock transaction that creates a company unrivalled in its breadth of financial services and global reach.

Translation: Must... have... the Precious.

BoA: "Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders," Bank of America Chairman and Chief Executive Officer Ken Lewis said.

Translation: Acquiring one of the premier wealth management, capital markets, and advisory companies has been our quiet obsession for years.

BoA: "Together, our companies are more valuable because of the synergies in our businesses."

Translation: More is more.

BoA: "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," said John Thain, chairman and CEO of Merrill Lynch.

Translation: "I found a responsible buyer. Can I go now?" pined John Thain, visiting chairman and CEO of Merrill Lynch

BoA: 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.

Translation: There was no point in trying to peg it to stock prices. We want to get the deal done.

BoA: 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.

Translation: Aren't stock deals great?

BoA: 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.

Translation: Desperation tends to accelerate approvals.

BoA: Under the agreement, three directors of Merrill Lynch will join the Bank of America Board of Directors.

Translation: We already know who they are.

BoA: The combined company would have leadership positions in retail brokerage and wealth management. By adding Merrill Lynch's more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world with more than 20,000 advisers and $2.5 trillion in client assets.

Translation: We're calling it "The Synergizing Herd." Kinda catchy, huh?

BoA: The combination brings global scale in investment management, including an approximately 50 percent ownership in BlackRock, which has $1.4 trillion in assets under management. Bank of America has $589 billion in assets under management.

Translation: More is more... once more.

BoA: Adding Merrill Lynch both enhances current strengths at Bank of America and creates new ones, particularly outside of the United States. Merrill Lynch adds strengths in global debt underwriting, global equities and global merger and acquisition advice.

Translation: Adding Merrill Lynch will finally get us the respect we deserve.

BoA: After the acquisition, Bank of America would be the number one underwriter of global high yield debt, the third largest underwriter of global equity and the ninth largest adviser on global mergers and acquisitions based on pro forma first half of 2008 results.

Translation: More is, uh... you get the picture.

BoA: Bank of America was advised by J.C. Flowers & Co. LLC, Fox-Pitt Kelton Cochran Caronia Wallerand Bank of America Securities. It was represented by Wachtell, Lipton, Rosen & Katz. Merrill Lynch was represented by Shearman & Sterling.

Translation: We've studied this forever, and all we had to do was push the button.