Merrill and Bank of America deal sparks lawsuits

Losses & Lawsuits

NEW YORK - Within minutes of the September 15 announcement of the demise of Lehman Brothers, rival Merrill Lynch revealed its sale to fellow investment giant Bank of America in a $50 billion deal.

The deal, which will be worked out in the early part of 2009, will see Bank of America pay around $29 for each Merrill share - up on September prices of under $5 but down from more than $90 in early 2007. Merrill's sale, though not forced in the style of March's Bear Stearns near-collapse, is similarly shocking.

Merrill has been one of the greatest losers among the banks as a result of subprime debts. It has written off more than $40 billion of assets over the past twelve months. How long the US's largest brokerage and fourth largest investment bank could have struggled on independently is unknown, although by sailing its sinking hull into a safe harbour it has avoided a Lehman-style collapse.

The new group would be the largest brokerage house in the world.

The combined underwriting power of the two banks ought to leave Bank of America in a commanding position across US and global equity and debt capital markets. But however well the two complement one another, a merger would make large-scale job losses on Merrill's side unavoidable.

The sale requires approval by US regulators - who are likely to push the deal through in the interests of financial stability - and shareholders - who may pose more of a problem. Merrill shareholders have already filed lawsuits against the bank's chief executive John Thain and the company's board of directors, claiming the terms of the deal are unfair.

One suit was filed by law firm Murray, Frank & Sailer in the New York State Supreme Court on September 15 on behalf of shareholder Peter Miller and a class of investors. It claims the $50 billion offered by Bank of America is insufficient, and that Merrill is being undervalued against its interests.

On the same day, law firm Wold Haldenstein & Herz said it would launch its own investor lawsuit against Merrill and Bank of America. The company claims that Thain and the Merrill board possess undisclosed financial information on Merrill's investments that they have not disclosed to shareholders.