Bank of America on Monday began adding another slice to its growing financial services empire, buying Merrill Lynch in a $50 billion deal that would create a bank offering everything from fixed-income trading to credit card lending.
It will rival Citigroup Inc., the biggest U.S. bank in terms of assets.
Bank of America Corp. said early Monday it would acquire Merrill Lynch in an all-stock transaction worth about billion that should lift the uncertainty shrouding Merrill since the start of the credit crisis over a year ago.
Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch & Co. Inc. is the world’s largest and most widely recognized brokerage.
“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 in a statement. “Together, our companies are more valuable because of the synergies in our businesses.”
Under terms of the transaction, Bank of America would exchange 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, the statement said.
The deal values Merrill at a share. That represents a 70 percent premium over the brokerage’s Friday closing price of .05, but well below what Merrill was worth at its peak in early 2007, when its shares traded above .
Merrill’s shares surged .38, or 31.6 percent, to .42 in early trading Monday. Bank of America shares dropped .44, or 13.2 percent, to .30.
Merrill’s stock dropped further last week as ailing Lehman Brothers Holdings Inc. raced to find to a buyer. Early Monday, Lehman, the No. 4 investment bank in the U.S., filing for Chapter 11 bankruptcy.
“First, obviously Merrill is much, much more than an investment bank. It is the best wealth management company in the world,” Lewis said during a conference call. “The frustration, I think, is we were in some ways in no man’s land. It has been frustrating, frankly and we’ve had some stop and gos. This solves that, and creates the company that instantly would have taken decades to build. We would have been frustrated for quite some time, and this just changes that. I like it again.”
Bank of America said its buyout is expected to close in the first quarter of 2009. The deal been approved by directors of both companies and is subject to shareholder votes at both companies and standard regulatory approvals, the bank said.