Analyst: Bailout could kill Merrill merger

With the firm’s survival assured by the government's bailout plan, Merrill Lynch shareholders may cool on the company's $50 billion merger plan with Bank of America.

The federal government’s decision to bail out ailing banks by acquiring their toxic assets ironically could imperil Merrill Lynch’s efforts to help itself by merging with Bank of America, according to a UBS research report.

“We think [Merrill] holders may be less interested in seeing this deal happen,” wrote UBS’s Glenn Schorr in a client note today.

Mr. Schorr figures that investors could well decide to vote down the $50 billion merger, if they conclude that the government’s move offers Merrill and other investment banks some time to breathe and figure out ways to remain independent.

On the other hand, Merrill would face big challenges if shareholders turned thumbs down on the BofA merger.
The firm has $64 billion of so-called Level III assets on its books, which are mortgage-related and other assets so toxic that they cannot be priced because no one will bid for them.

Mr. Schoor acknowledged that the state of Merrill’s balance sheet and its ability to raise the cash needed to fund daily operations are two big unknowns at this point.

Still, investors seem inclined to ignore, at least for a day, any gloomy news concerning the investment banks.
Shares of Merrill, Morgan Stanley, and Goldman Sachs all soared on Friday.