AP News, January 29th, 2007
Merrill Lynch & Co., the biggest U.S. retail brokerage, said Monday it will buy San Francisco-based wealth manager First Republic Bank for $1.8 billion in cash and stock.
The transaction allows Merrill Lynch to tap into $10.7 billion of assets held by First Republic, which provides investment services including trust banking and luxury home lending. Because it caters to the wealthy, First Republic attracts hefty deposits and has few credit problems, the companies said.
This marks Merrill's biggest takeover in about a decade, and is part of a wider strategy to offer banking services for its more affluent customers. The New York-based company last year took a 50 percent stake in money manager BlackRock, and also bought mortgage bank First Franklin Financial Corp. last year.
"First Republic will enable Merrill Lynch to accelerate its strategic objective of growing its high net worth business," said Robert J. McCann, president of Merrill Lynch's private client business, in a statement.
He said last year the company was in talks with a number of smaller money management firms around the world to bolster the unit's reach. Among deals secured overseas has been a joint venture with Mitsubishi Tokyo Financial Group Inc. to target wealthy customers in Japan.
The deal was announced the same day that Citigroup Inc., the biggest U.S. financial service company, said it has agreed to acquire British insurer Prudential PLC's Egg Internet banking unit for $1.1 billion.
First Republic would become a stand-alone division within Merrill Lynch Bank & Trust Co., maintaining First Republic's name and San Francisco headquarters. Merrill Lynch expects to close the deal in the third quarter, pending shareholder and regulatory approvals.
Merrill Lynch offered $55 per share for First Republic, split evenly into cash and stock. The offer represents a 43.6 percent premium to First Republic's Friday closing price on the New York Stock Exchange.
Shares of First Republic rose $15.29, or 40 percent, to $53.59 in morning trading on the New York Stock Exchange. Merrill shares dipped 95 cents to $93.58 in the NYSE.
The deal is expected to close in the third quarter, pending approval by regulators and First Republic shareholders.
Merrill Lynch, which earned $5.12 billion in 2005, said it would repurchase on the open market the number of shares issued to complete the deal. Merrill expects the acquisition to add modestly to earnings by the end of 2008.
First Republic has 43 offices located in key metropolitan markets across the United States, including Silicon Valley, Los Angeles, Las Vegas, Portland, Seattle, Boston, Greenwich, Conn., and New York City.
The company has $7.9 billion in deposits and $7.6 billion in outstanding loans. Net income after paying preferred dividends totaled $46.3 million for the nine months.
Jim Herbert and Katherine August-deWilde will continue as chairman and CEO and president and COO, respectively. Current directors will serve as the division's advisory board, which will continue to be led by the bank's current chairman, Roger Walther.
