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Falling under the “you’ve got to be kidding” category, Bank of America agreed to buy Merrill Lynch & Co to what equates to about $29 a share! This offer means that Bank of America would pay a 70% premium over Merrill’s closing price on Friday, which is just unbelievable.
This will make this stock extremely interesting on Monday, as people try to spin this news as either good or bad. (Personally, I think the stock will go down but with the stock market, you never know what people are willing to believe at any moment in time).
It’s really hard to guess Bank of America’s tolerance for risk, as they keep buying financial firms and paying a premium (remember Countrywide?). I wonder if there were any under the table deal with the fed for Bank of America because BofA’s financial health is not what you would call “robust”.
What’s more interesting is that they would rather buy Merrill at such a high price as opposed to Lehman Brothers which they could probably snatch up at a deep discount. What this tells me is that Lehman Brothers’ books are so bad that no one will touch it with a ten foot pole. I’m willing to bet that Lehman will be gone in a few months.
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Actually, Lehman just died. As well.
Lehman is filing for bankruptcy, so they are gone.
The Merrill sale is surprising because they did a lot in the past 6 months to really clean up their books — selling toxic assets, etc.
At the same time, that may justify the premium in the price as well. Merrill seems to be on more solid ground and is a huge business that complements BoA’s business really well.
Flip side of that is now it’s almost like BoA is “to big to fail” now.