Bank of America - Merrill Lynch

Fernandy William
Lilis Susilawaty
Supinah

MM Untar Angkatan 55

Main Problem

Should Kenneth D. Lewis, Bank of America CEO,

complete the Merrill Lynch deal ?
or
Declare a MAC and risk invoking the wrath of
the U.S. Government ?

Bank of America History

 Bank of Italy was founded in San Francisco by Amadeo

Giannini in 1904.
Merged with Bank of America to become the largest
banking institution in US.

Bank of Italy was renamed Bank America Corp.

Become big and took the better-known name of
Bank of America by a lot of acquisition.

Merrill Lynch History

 Found by Charless Merrill & Edward Lynch in 1914

named Charles E Merrill & Co.

Renamed into Merrill Lynch & Co in 1915.

Creates Merill Lynch Asset Management in 1976.

Become world's largest underwriter of stocks and

bonds for the last time in 1999.
In 2006, Merrill was the largest underwriter of
Colateralized Debt Obligations (CDOs)
In one year between June 2007 and June 2008, Merrill
Lynch lost $19.2 billion.

CDOs and Sub-prime Market

Investment
Bank

Funds
Customer

Credit ( Ex. KPR )

Commercial
Bank

CDO

1
2
3

Timeline of Events

 September 13th 2008, Thain, Merrill Lynch CEO, meet

Lewis, Bank of America CEO, to talk about a potential
deal for buying Merrill Lynch.
Merrill Lynch officials also engaged in talks with
Morgan Stanley and Goldman Sachs .
September 15th 2008, Bank of America offered to buy
Merrill Lynch.

Detail of The Deal

Ratio of Bank of America Shares per Merrill Lynch Share:
No Collar Provision for protect stock fluctuations

0.8595

Share Price of Bank of America, September 12, 2008:

$33.74

Offer Price for Merrill Lynch Common Stock:

$29.00

Premium over Merrill Lynch common stock market price ($17):

70.59%

Premium over Merrill Lynch Book Value ($21):

38.10%

Total Offer Price:

$46,407,947,859

 November 3rd 2008, Merrill Lynch reported

$5.1 billion in losses for the third quarter of
2008.
December 1st 2008, Price, BofA CFO, asked
Mayopoulos, BofA General Counsel, to look
into the MAC clause in the bank of America
Merrill Lynch merger agreement.

December 3rd 2008, Estimated losses were

approximately $9 billion losses.

 December 5th 2008, BofA shareholders vote to

approve the deal.
There was no disclosure to BofA shareholders
about :
- The projected fourth-quarter losses at Merrill
- Possibility for BofA officials were evaluating a
MAC claim.
December 8th 2008, the Merrill Lynch boards
compensation committee approved $3.6
billion in bonus payments.

 December 14th 2008, Price told Lewis that

Merrills loss projections are updated to $12
billion. Lewis meets with lawyers to discuss
the viability of a MAC claim.
December 17th 2008, Lewis meet Paulson to
talk about a case for a MAC and wants to exit
the deal.
December 19th 2008, Lewis held a conference
call with his BODs to discuss the potential risks
of invoking the MAC Clause.

 December 21st 2008, Fed officials became

skeptical that Lewis would, even could, invoke
the MAC Clause.
Paulson told to Lewis if he called a MAC, they
will remove the board and management.

Solution

Lewis should complete the deal with some conditions:

-

Set an official meeting which involve Bank of America BOD,

Merrill Lynch CEO and also representative from USA
Government.

Open all information to shareholder & BOD regarding Merrill

Lynch, especially about the losses.

Perform due diligence to investigate this deal.

Dont give for Merrill Lynchs bonusses compensation.

Ask USA Government about the numbers that will be assisted

for Merrill Lynch losses.

Still keep the MAC until get final decision from BOD &
Shareholder meeting regarding the deal.

Evaluation

The Failure of Corporate Governance

Agency Problem
Lack of due diligence
Lack of transparency
Ethical Issues

Conclusion

- There are always agency problem & political

issue in every merger & acquisition.

- The important of transparency and due

diligence to get the right decision.