Merrill's Moves Make It More Appealing Takeover Candidate

CreditSights welcomes Merrill Lynch’s (MER) decision to take a markdown of $5.7 billion and raise up to $9.8 billion in capital.

In a new report Merrill Lynch: Clearing CDO Cobwebs, Can Investors be Constructive?, CreditSights says,

Net-net, we believe that Merrill’s actions today are a huge step in the right direction as it significantly reduced its ABS CDO and related monoline hedges while also increasing capital… following the current round of marks, we believe that Merrill may have put most of its CDO related marks behind it and raised capital to cover most of our other remaining hot stove marks.

CreditSights also says Merrill’s moves makes the company “more appealing as a takeout candidate.”

Merrill has an attractive asset management business, a global capital market operation, a large stake in BlackRock, and a bank.

Many of these business units would make the company more attractive as a take over candidate, CreditSighs says. “We believe that in such case, potential acquirers could include Goldman Sachs (GS),  HSBC (HBC), Bank of America (BAC), and JPMorganChase (JPM).”

 

CreditSights' full analysis of Merrill’s moves is available for purchase.

Meanwhile, Moody’s has affirmed Merrill’s ratings at A2/stable after the moves.

Comments

[bbzz24]

they really reduced their CDO exposure by ... writing off 94% of 30bn face value paper. the stock is up 8% on the news. if they do the same with all their assets probably the stock will shoot through the roof.

[Karl Zachar]

What would Goldman Sachs gain by buying Merrill? I think that is a crazy idea. Furthermore, JP Morgan just bought Bear Stearns. Will they really buy another broker?

The more interesting rumor is one posted on the NYT DealBook today stating that Goldman Sachs "might" be in the market to buy a bank if the price was right. Despite today's rally, we should continue to see weakness in the bank stocks so GS might get their chance. Now that would be risky and aggressive, but would make more sense than GS buying MER.

karlzachar.com

[Chemist29]

I remember Ken Lewis (ceo of BAC) making a sneering comment something to the effect of "we wont use our petty cash to buy an investment bank"