Friday, October 26, 2007

Wachovia and Merrill

In a move that will most likely end up costing him his job, Merrill Lynch (MER) CEO Stan O'Neal apparently approached Wachovia (WB) with the prospect of a merger.

Wachovia, which became the second-largest retail brokerage firm after acquiring A. G. Edwards would have been catapulted into a major player as the firm melded their 25,000 prospective brokers. Wachovia would have been the perfect partner for Merrill because of their proven ability to smoothly execute mergers. If you just look at it, O'Neal was doing what would be best for Merrill shareholders, it is just the way he went about it that will cost him.

O’Neal is in hot water because he floated the possibility of a merger with Wachovia, without first getting the approval of Merrill’s board, and that is something that CEO's just do not do. This comes days after Merrill's shocking $8 billion write-down and news yesterday that another $4 billion may be chopped in Q4. It looks like O'Neal may have been trying to negotiate himself a nice buyout severance package knowing what was coming down the pike.

We just bought Wachovia shares after the last quarters results were released and would have been a fan of the merger. Merrill, while in a world of hurt now is currently a very cheap asset to acquire. The problems there are O'Neal's creation since it is his strategy in place that lead to them and ridding the bank of his "leadership" would allow for the reversing of those issues. While Wachovia had write down last quarter, they were dwarfed by those at Merrill.

Who knows, this may still happen and if nothing else, it does show that with financials being so battered and bruised, valuations are such that deal-making may be in the cards for a few firms.

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