After watching this morning’s Congressional hearings on what role the Fed and Treasury played in getting Bank of America to stick with its deal to acquire Merrill Lynch, our elected representatives failed yet again to ask the question I have never had fully answered:
Why did Bank of America agree to pay .859 of a share, roughly $50 billion worth of its stock and a big premium to Merrill’s then stock price on Sunday September 14th, when it was clear to virtually anyone who was paying attention that Merrill’s stock price was about to collapse when trading began that Monday morning?
It is a relevant question because there is still speculation that the government encouraged BofA to do a deal at a sufficiently high price to send a message of confidence to the market.
It’s also relevant because it may have been one reason why Lewis was willing, a couple of months later, to consider trying to invoke a MAC to get out of the deal or more likely, enter a negotiation to lower the price.
In answers to questions about the deal in the days following its announcement, Lewis defended the price BofA agreed to by saying the firm viewed Merrill as a world class asset that competitors might try to swoop in and buy and so BofA needed to pay a sufficient price to lock it up.
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Perhaps that is all there is to explain the strangely high price Lewis paid for Merrill. But I still wish the question had been asked.
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