No Merger: Just Split up Merrill Lynch

Posted on Monday, 29 October 2007. Filed under: Commentary, Mergers |

Let’s take a page from the RBS / Santander / Fortis songbook:  why does an acquisition of Merrill Lynch need to be done by just one financial buyer.  Look at the assets.  There’s enough carrion in Merrill Lynch to feed a flock of banking vultures.  Add in the restructuring funds and think about the possibilities.  They all have money available right now. 

The feeding frenzy starts with the choice morsels, of course.  There’s more people piling onto the ‘fire Stan O’Neal’ bandwagen than there were tackles in Wembley Stadium on Sunday.  [Yes, for those who were not reading the sports pages during the past two weeks here in the UK, the first regular season game in American football history to be held outside of North America took place on Sunday in the new Wembley Stadium — usually the pitch reserved for another brand of football.  For the record, the New York Giants beat the Miami Dolphins 13 – 10 in a rain-soaked (this is London, of course) game.]

How does this relate to a Merrill Lynch acquisition?  The CEO is out.  Some are suggesting that the likely successors to Stan O’Neal all have built their reputations previously by doing big deals (see the The Wall Street Journal‘s M&A deal blog story entitled ‘No M&A in Merrill’s Future — For Now‘).  There is rank speculation about who could take over Merrill (see Here is the City and their article entitled ‘So Who Might Merge With / Take Over Merrill Lynch‘), with the smart money on Deutsche Bank or JP Morgan Chase.  All the deals suggested depend heavily on the CEO in charge of the acquirer — not surprising because hubris, as those who have read my blog or heard me lecture will know, is usually THE driver behind a deal, no matter what the press releases or spin doctors in Investor Relations will tell you.  But does Merrill Lynch have time to put it’s own house in order so that it can engineer the next big financial services industry deal for itself?

Is Merrills ‘too big to fail’?  This usually refers to a bank or other national asset (telecoms companies, utilities, car manufacturers) that have fallen on hard times, usually because of poor strategic decision making or maybe just bad luck.  The government then comes in with a bail-out.  Sometimes this is in the form of an engineered takeover — a possible outcome discussed for Northern Rock.  Is Merrill Lynch in the same boat as Northern Rock, or at least are they sailing the same waters?  I am not suggesting that the US government will need to step in to save the account owners in Merrill Lynch just yet, but that assets — and names — such as Merrill Lynch do not become available very often.  That’s why a break-up seems more likely to me.

Merrill’s is a franchise important enough that every major bank in the world should be tasking their Corporate Development department to take a look.  But I think some of those planners should talk to each other.  Deutsche could use the investment banking business.  UBS would love the asset management side.  Bank of NY Mellon (fresh from their own merger) or State Street could expand their service businesses.  The retail brokerage business would help either Citi or JP Morgan Chase, and they could keep the Merril Lynch name, which is most important in the retail sector.  And the possibilities go on and on and on. 

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