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NEW YORK - Merrill Lynch, in its biggest acquisition in almost 10 years, has agreed to buy First Republic Bank for US$1.8 billion ($2.6 billion) to gain clients with an average net worth of US$20 million.
The deal values First Republic at US$55 per share, Merrill said yesterday, 44 per cent more than the San Francisco-based bank's closing price on January 26. The firm will pay half the price in cash and the other half in stock.
Merrill chief executive officer Stanley O'Neal has turned to acquisitions from cost cuts to fuel profit growth at the world's third-largest securities firm. First Republic, which has 43 branches and specialises in mortgages on luxury homes, gives Merrill more wealthy customers who may buy brokerage services.
O'Neal complained in November that the firm was "leaving too much client banking business on the table".
"Luxury lending and wealth management, those are higher-end customers," said Steve Roukis, managing director at New York-based Matrix Asset Advisers, which owned 500,000 Merrill shares as of September 30.
"It's a continuation of their strategy to focus on their core business and either build or acquire whatever gives them a better return on their cost of capital."
Merrill, based in New York, said it expects the transaction to add "modestly" to earnings per share by the end of 2008.
First Republic operates 37 bank branches in California and six others in US cities including Boston and New York.
- BLOOMBERG
