Bank Merger Case Study

Case Study of the Bank of America and Merrill Lynch Merger Robert J. Rhee No. 2010 - 21

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CASE STUDY OF THE MERGER BETWEEN BANK OF AMERICA AND MERRILL LYNCH

Robert J. Rhee†

The financial crisis of 2008 has posed innumerable problems in law, policy, and economics. A key event in the history of the financial crisis was Bank of America‟s acquisition of Merrill Lynch. Along with the fire sale of Bear Stearns and the bankruptcy of Lehman Brothers, the rescue of Merrill Lynch confirmed the worst fears about the financial crisis. Before this acquisition, Bank of America had long desired a top tier investment banking business, and Merrill Lynch represented a strategic opportunity to acquire a troubled but premier franchise of significant scale.1 As the financial markets continued to unravel after execution of the merger agreement, this golden opportunity turned into a highly risky gamble. Merrill Lynch was losing money at an astonishing rate, an event sufficient for Bank of America to consider seriously invoking the merger agreement‟s material adverse change clause. 2 The deal ultimately closed, but only after the government threatened to fire Bank of America‟s management and board if the company attempted to terminate the deal. The government took this coercive action to save the financial system from complete collapse. The harm to the financial system from a broken deal, officials feared, would have been unthinkable. The board‟s motivation is less clear. Like many classic corporate law cases, the factors influencing the board and management were complex. This case study examines these complexities, which raise important, unresolved issues in corporate governance and management. In 2008, three major investment banks—Bear Stearns, Lehman Brothers, and Merrill Lynch—collapsed or were acquired under distress, and these...