While everyone is talking about a rough day ahead for the financial sector, it's worth noting that Monday will reveal a surprise stock move in the financial sector: Merrill Lynch. It is being bought for roughly double its stock valuation from Friday's close. It is an all-stock deal, and will dramatically up its stock price.
BAC is offering $50 billion, above Merrill's Friday market capitalization of $26 billion. Though the deal is in stock, not cash (which means the stock will now track more to BAC's stock and come down a bit), the new valuation will still be a substantial gain for Merrill investors. The way BAC is talking about it, BAC is getting a good deal. They're getting Merrill at a fire-sale price, with huge gains down the road. It's tacking on almost a trillion in assets to its company. Forbes
You have to wonder if this "bail-out" isn't coming under the cover of Lehman Brothers' rapid choice to restructure. Similar to the covert takeover of JP Morgan with Bear Stearns (an offer which was later upped substantially), Bank of America finds itself with enough leverage to take Merrill's near 1 trillion in assets off its hands. What a nice guy!
Which brings me to the larger issue: should we really feel bad for these companies? I feel bad for those owning Lehman stock, but my feeling with these takeovers and bail-outs is -- in part-- why should we feel bad for these big players? When does the government bail-out small companies? The kind of companies that wind up getting bought up by these big fish?
They say these companies are different they're "too big to fail" and yet, should we really feel bad for them? Should we really feel bad when things don't go their way?
The whole reason a lot of these companies got so big was not because they were so good at developing and selling products/services, they became these unwieldy creatures through buyouts and mergers. They live off the fat of good times-- Do you know the starting salaries at Lehman? Do you know how much their execs make? It's a lot. They were powerful last year, top of their group... but now they are no longer a big listed corporation to put others in their place, but a company of many frightened people with suits and ties scurrying to save their jobs and salaries that could suddenly disappear. Big salaried jobs...* UPDATE * To clarify, I don't recommend buying Merrill Lynch-- It's nice if you own it already, but I don't recommend buying it.