Mergers, Acquisitions and Takeovers Case Study

Bank of America’s Acquisition of Merrill Lynch: A Challenge to Rival Citigroup

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Abstract:
This structured assignment is to accompany the case '109-051-1'. The abstract of the case is as follows: Merrill Lynch was founded in 1914 by Charles E Merrill and his friend, Edmund C Lynch. It heralded the idea that everyone, not just the rich, should invest in the financial markets. Merrill went on to become not only one of the pillars of Wall Street, but built a unique reputation as the stockbroker for Main Street as well. Through its subsidiaries and affiliates, the company provided capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related financial services worldwide. Headquartered in New York City, Merrill occupied the entire 34 storeys of the Four World Financial Centre building in Manhattan and its 16,000 plus investment bankers earned it the nickname 'The thundering herd'. Merrill came to be known as the Catholic firm of Wall Street until the late 1970s. However, Merrill, which had survived several economic downturns caused by world wars and the US Great Depression, succumbed as an independent company to the sub-prime mortgage crisis that had begun wreaking havoc from mid-2007. On 14 September 2008, Merrill announced that it preferred being acquired by the Bank of America rather than run the risk of filing for bankruptcy. Merrill's announcement shocked many veterans at Wall Street. Merrill, after having lost more than $45 billion on its mortgage investments, agreed to sell itself to the Bank of America for $50.3 billion in stock. The merger reinforced the existing strengths of the Bank of America and generated new ones with Merrill Lynch's wealth management expertise. Market watchers speculated on how this merger would impact the reigning Citigroup.

Pedagogical Objectives:

• To understand the impact of the sub-prime mortgage crisis on the US investment banks.
• To analyse the reasons for the fall of Merrill Lynch.
• To study the rationale of an acquisition of a troubled investment bank by a commercial bank.
• To identify if the Wall Street-Main Street combine will affect reigning competitors like Citigroup.

Keywords : Merrill Lynch, Bank of America, Investment banking, Acquisition, US sub-prime mortgage crisis, Risk management, Citigroup, Financial services, John Thain, Ken Lewis

Contents : 
Merrill Lynch: The Rise and the Fall
The Orange county litigation
Subprime mortgage crisis
Acquisition of Merrill Lynch by BOA
Synergies of the Combined Entity – A threat to Citigroup?
Forward-Looking Statements issued after the announcement of the acquisition