Charlotte, N.C. – Bank of America Corp. on today said it will acquire MBNA Corp. in a $35 billion cash and stock deal that will result in 6,000 jobs cuts but transform the nation’s third-largest bank into one of the world’s largest credit card issuers.
MBNA President and CEO Bruce L. Hammonds, 57, will become CEO and president of Bank of America Card Services and report to Liam E. McGee, 50, president of Bank of America global consumer and small business banking. Hammonds will remain in Wilmington, Del., where MBNA is headquartered, and be part of Bank of America’s risk and capital committee.
Frank P. Bramble, Sr., a vice chairman of MBNA, will be appointed to the Bank of America’s board of directors.
Bank of America said the acquisition is an opportunity to grow a business that has proven to be one of its fastest growing segments.
“Today’s announcement is not only about the creation of one of the world’s largest card providers. That is compelling in and of itself,” said Ken Lewis, Bank of America’s chairman and chief executive. “But it’s really a much larger story about two companies with complementary strengths.” The deal is a pricey one for Charlotte-based Bank of America, one of the nation’s largest banks, but “not a shocker,” said Andrew Collins, an analyst at Piper Jaffray in New York. Lewis has been talking about buying a company offering credit cards based on the prime rate for a while, Collins said, and “there’s only one of them left.” “They are going to make this as seamless as possible for MBNA customers,” Collins said. “And they will get more banking services as this goes forward because Bank of America has more products.” Collins said he liked the price, even though he called it a little high.
“It’s not cheap, but the earnings prospects look pretty good,” he said. MBNA earned $2.7 billion on revenue of $12.3 billion in 2004.
The deal is expected to close in the fourth quarter of 2005.
Under terms of the agreement, MBNA shareholders will receive 0.5009 common shares of Bank of America plus $4.125 in cash for each of their shares. Based on Bank of America’s Wednesday closing stock price, the deal values MBNA at $27.50 per share, a 31 percent premium to their Wednesday closing price of $21.07.
After the announcement, NYSE-listed shares of MBNA surged $5.34, or 25 percent, to $26.41 in early trading on the New York Stock Exchange. Shares of Bank of America fell 83 cents, or 1.8 percent, to $46.08.
Bank of America expects the job cuts to help it achieve overall cost savings of $850 million, which would be fully realized in 2007, and anticipates a restructuring charge of $1.25 billion.
Savings also will be achieved through the elimination of overlapping technology, vendor leverage and marketing expenses.
After the deal is completed, Bank of America said it will be one of the leading worldwide payments-services companies and issuers of credit, debit and prepaid cards based on total purchase volume.
Bank of America said the agreement has been approved by both boards of directors and is subject to approval by regulators and MBNA shareholders.
The company said about 55 percent of the combined company’s earnings will come from global consumer and small business banking, 17 percent from global business and financial services, 11 percent from global capital markets and investment banking and 10 percent from global wealth and investment management.
“For our shareholders, the Bank of America and MBNA combination yields a diverse business mix less dependent on market-sensitive businesses,” said Lewis. “The financial strength and cash flow generation of the combined entity should provide significant resources to support future growth.” The deal come two weeks after the Federal Reserve cleared the way for financial services powerhouse J.P. Morgan Chase & Co. to combine with Chicago-based Bank One Corp., forming the nation’s second-largest bank with more than $1 trillion in assets.
Bank One, with branches in 13 Midwest and Southwest states and in Florida, has $320 billion in assets and over 51 million credit cards issued.
Meanwhile, Morgan Stanley is reportedly proposing a spinoff of its credit-card business, Discover Financial Services.
