Acquisition Business

The Leveraged Buyouts Analysis

Bank of America’s Acquisition

of Merrill Lynch

Introduction

Leveraged buyouts is one of the most used tactic of business to acquired power over a company, business buy large amount of stock on a particular company using borrowed money. Leveraged buyout is also known as hostile takeover, a highly-leveraged transaction, or a bootstrap transaction (Margarethe F Wiersema, and Julia Porter Liebeskind). Leveraged buyout involves in high debt equity ratio, large corporations can easily acquire smaller companies with very little capital. If the acquired company’s returns are greater than the cost of the debt financing then all stockholders can benefit from the financial returns, further increasing the value of a firm. The advantage of this method is the corporation can renew its company structure including modifying and replacing executive, management staff, and excessive expenditures. However, if the acquired company’s returns are less than the cost of the debt financing then corporate bankruptcy can result. Moreover, the high interest rates require by leveraged buyouts may be a challenge for companies that cash flow and sale of assets are inadequate. As the result not only leads to a company’s bankruptcy but can also result in a poor line of credit for the buyout investors (Go4Funding).

This paper analyzes the leveraged buyouts that one company acquires another company in all stocks transaction. In fact, on September 15, 2008 the Bank of America bought Merrill Lynch in $50 billion deal. Bank of America is the leading commercial bank not only in USA but it is also well known across the world. It was established as Bank of Italy in 1904 by Amadeo Peter Giannini and his son in San Francisco, California. At the time of establishment Bank of America was for the small farmers who had come from Italy. Today Bank of America serves almost 59 million consumers. Bank of America has head quarter in Charlotte, North Carolina. It has about...