According to the merger agreement urgently signed between Merrill Lynch and Standard Chartered, Standard Chartered will acquire Merrill Lynch for a total of $40 billion, consisting of $25 billion in cash and $15 billion in new shares issued to Merrill Lynch shareholders.
This price represents a premium of over 50% to Merrill Lynch's market capitalization based on its closing price on the previous trading day.
This offer clearly benefits Merrill Lynch.
This is one reason why Merrill Lynch quickly finalized the transaction with Standard Chartered after contacting several potential buyers.
Previously, shareholders of Bear Stearns and Lehman Brothers, unable to sell their shares due to missed opportunities, suffered heavy losses. This undoubtedly increased the urgency among Merrill Lynch shareholders, prompting them to quickly conclude the transaction.
Upon completion of the acquisition, all Merrill Lynch shares will be exchanged for cash and Standard Chartered shares, and Merrill Lynch will be delisted from the stock market.
According to Barron's plan, after the merger, Standard Chartered will be renamed Standard Chartered Merrill Lynch. Some of Merrill Lynch's overseas operations will be integrated into Standard Chartered, while investment banking operations in the United States will continue under the Merrill Lynch name.
Previously, Standard Chartered had both commercial and investment banking operations, though its focus was on emerging markets such as Asia, Africa, and Latin America. With the acquisition of Northern Rock Bank, Standard Chartered expanded its commercial and investment banking operations in the UK. Now, with the acquisition of Merrill Lynch, Standard Chartered will also expand these core businesses into the North American market.
Merrill Lynch is a prominent brokerage bank with 16,000 financial advisors. The acquisition of Merrill Lynch will not only give Standard Chartered Merrill Lynch access to commercial banking and securities operations in the United States, but will also significantly increase its brokerage revenue and the proportion of its non-interest income.
Merrill Lynch's commercial bank, Merrill Lynch Industrial Bank, will also be integrated into Standard Chartered, giving it a large network of branches and depositors in North America.
It's worth noting that, prior to this acquisition, Standard Chartered's market capitalization had reached $60 billion, with its share price having increased by over 30% compared to the previous year. Its size has increased 1.5 times over the past four years, and Standard Chartered currently controls nearly $600 billion in assets.
This makes Standard Chartered the fourth-largest listed bank in the UK, behind HSBC Holdings, Royal Bank of Scotland, and Barclays.
Standard Chartered's acquisition of Merrill Lynch will be financed by British Fortune (BFT) with $25 billion in financing (BFT will purchase $25 billion in convertible bonds from Standard Chartered) and by issuing $15 billion in new shares to Merrill Lynch. Following
the acquisition, Merrill Lynch's existing shareholders will hold approximately 20% of Standard Chartered Merrill Lynch (including Caesars Fund's stake in Merrill Lynch, which will be exchanged for approximately 1.7% of Standard Chartered Merrill Lynch shares and cash).
After the acquisition, DS Holdings will hold a 52% stake in Standard Chartered Merrill Lynch; Rich23 Capital will hold a 12% stake; and Caesars Funds will hold a 1.7% stake.
Baron currently controls 65.7% of Standard Chartered Merrill Lynch.
Furthermore, the Cavendish Trust holds £25 billion in convertible bonds, and the BFT Fund also holds $25 billion in convertible bonds.
Once these bonds are converted into Standard Chartered Merrill Lynch shares, Baron's stake in the company will increase significantly.
In fact, a key method of capital manipulation for the listed companies he previously controlled during the subprime mortgage crisis was to reduce his holdings when the stock prices were high. As the crisis progressed, he provided these companies with funds in the form of convertible bonds to finance acquisitions and expansion.
Then, when the stock prices fell, he converted the convertible bonds into common stock, significantly increasing his stake in these companies. This process completes a cycle of "selling high and buying low."
Standard Chartered Bank has signed an acquisition agreement with Merrill Lynch, which has been approved by both boards of directors.
Of course, the agreement still needs final approval from the European Union and the US government, after which this massive merger will begin.
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At the same time that Standard Chartered and Merrill Lynch reached their agreement, Lehman Brothers' only remaining hope remained with Barclays.
At the time, Barclays had no investment banking business. To gain access to the US market, they had previously expressed their willingness to acquire Lehman Brothers for $10 billion after stripping out its toxic assets.
As mentioned earlier, to survive the bankruptcy crisis, Lehman Brothers CEO Fuld proposed a split plan: he planned to separate Lehman Brothers' troubled assets and other mortgage-related assets into a "bad bank" and merge the best assets and high-quality businesses into a "good bank." Financing
from the sale of the "good bank" would inject capital into the "bad bank."
At the time, the Development Bank of Korea was interested in Fuld's plan and made a takeover offer for Lehman Brothers.
There was a chance they could reach a deal, but Fuld dismissed the offer as too low, and negotiations stalled.
A few days later, South Korean financial regulators criticized the deal, leading the Development Bank of Korea to abandon the acquisition.
However, with hopes of selling Lehman Brothers outright to Standard Chartered Bank dashed, they had no choice but to revisit the plan and negotiate with Barclays.
On July 13, the day after Standard Chartered terminated its acquisition of Lehman Brothers, US Treasury Secretary Paulson and Geithner arrived at the conference room to announce a piece of good news everyone in attendance knew: Barclays had drafted a complete acquisition plan the previous evening and was ready to proceed.
The only obstacle was the need for other banks to provide sufficient funds to finance Lehman Brothers' non-performing assets, totaling approximately $33 billion.
Geithner asked the leaders present to agree on a detailed funding plan.
Barclays's enthusiasm for the acquisition gave the other bankers confidence. With the exception of Merrill Lynch (already set to be acquired by Standard Chartered) and Bear Stearns (already acquired by JPMorgan Chase), which explicitly declined to contribute, the other bankers gathered in a circle and began subscribing for their shares. JPMorgan Chase CEO Jamie Dimon was the most enthusiastic.
JPMorgan Chase stated that it was willing to contribute $1 billion to finance Lehman Brothers' non-performing assets...