Merrill Lynch Transaction Not Exactly Feeling Mr. Market's Love

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Updated:: Jan 14, 2019
Original:: Sep 16, 2008

Last I checked, Bank of America's offer was something like .8595 shares of BAC common for each share of Merrill Lynch common. Looking at BAC's current $28.22 price, that sounds like a $24.25 per share offer.
MER has been slipping steadily since after-hours trading just after the announcement had it in the mid-20s. Implied volatility for at the money calls 30 days out is sitting just below 200% as well. With spreads and volatility like that, someone in a risk arbitrage shop is going to clean up. And someone is going to take it on the chin.
I wonder if that long, even slide on my MER chart is just thankful equity holders bleeding out into the risk-arb crowd though.

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Remember in 2008, when Ken Lewis was all, "Oooh, wait, I don't know about this Merrill Lynch thing" and tried to back out of buying the bank? And Hank Paulson threatened to stuff him in a meat locker if he did so Ken Lewis said okay, fine, I'll do it? BAC investors are still upset about that. Bank of America directors’ $20 million settlement of investor lawsuits alleging the bank overpaid when it bought Merrill Lynch & Co. amounts to just 4 percent of the board’s $500 million in insurance coverage and is inadequate, lawyers objecting to the accord said. Attorneys for Bank of America shareholders suing in Delaware over the $50 billion acquisition of Merrill Lynch have asked a judge in that state to keep their claims alive even though a federal judge in New York is considering a $20 million settlement of almost identical suits brought by other bank investors. If that accord is approved, it could wipe out the Delaware claims. “The proposed settlement is grossly inadequate and represents only 0.4 percent of the value of the $5 billion derivative claims that the Delaware Derivative Plaintiffs have been vigorously pursuing,” lawyers for the Delaware investors said in a Delaware Chancery Court filing late yesterday. The settlement also amounts to “only 4 percent” of available insurance, they said. Disgruntled shareholders contend the board and former Chief Executive Officer Kenneth D. Lewis misled them about the brokerage firm’s losses leading up to the buyout and should have pulled the plug on the deal. Lewis, who left Bank of America in 2009, is now chairman of Chicago-based LaSalle Bank NA. [Bloomberg]

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Fedexodus will save us all...Fedexodus will kill us.