Merrill CEO Approaches Wachovia Without Board Approval; Grounds For Dismissal?

In a move that will most likely end up costing him his job, Merrill Lynch (MER) CEO Stan O'Neal apparently approached Wachovia (WB) with the prospect of a merger.

Wachovia, which became the second-largest retail brokerage firm after acquiring A. G. Edwards, would have been catapulted into a major player as the firm melded their 25,000 prospective brokers. Wachovia would have been the perfect partner for Merrill because of their proven ability to smoothly execute mergers. If you just look at it, O'Neal was doing what would be best for Merrill shareholders, it is just the way he went about it that will cost him.

O’Neal is in hot water because he floated the possibility of a merger with Wachovia without first getting the approval of Merrill’s board, and that is something that CEOs just do not do. This comes days after Merrill's shocking $8 billion write-down and news that another $4 billion may be chopped in Q4. It looks like O'Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike.

We just bought Wachovia shares after the last quarters results were released and would have been a fan of the merger. Merrill, while in a world of hurt now, is currently a very cheap asset to acquire. The problems were created by O'Neal and his strategy that led to them. Ridding the bank of his "leadership" would allow for the reversal of those issues. While Wachovia had write downs last quarter, they were dwarfed by those at Merrill.

Who knows, this may still happen and if nothing else, it does show that with financials being so battered and bruised, valuations are such that deal-making may be in the cards for a few firms.

Comments

[RPK:]

It is true that MER is cheap by historical metrics. The possibility, however, of future unspecified write downs exists. After the fiasco of the past quarter, WB would be taking on considerable risk in purchasing MER.

2007 Oct 28 05:58 PM

[Todd Sullivan:]

i think thompson was nicely telling him to go screw

2007 Oct 29 10:48 AM