First, why did Bank of America (BAC) rush to $29 a share for Merrill (MER)? We certainly understand why Merrill took $29, and we understand that they’re a good match (better than Lehman-BOFA), but what was BOFA thinking?
If BOFA had waited a day, it probably could have bought it for $10. Given what Lehman would have done to the market in the absence of a Merrill deal, the timing and price doesn’t make sense (unless there was another bidder).
Second, will Merrill take Bank of America down? BAC is still trying to digest the godawful Countrywide merger…and they’ve just now added tens of billions of dollars of additional problem assets. We assume the “$29” is a fixed stock-for-stock ratio, meaning that the value of the deal could drop significantly if Merrill acts like a lead weight on BAC’s stock.
Third, if BAC’s stock drops, could the BAC-MER deal be renegotiated? If AIG, WaMu, and others get nuked, Merrill’s assets will be worth even less (translation: a material adverse change). Is there a chance that the “$29” isn’t safe?
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