May not be real profit. Read this:
<quote>
These are some questions which arises in my mind regarding the BAC MER
deal. To get some answers to these I tried to look for a merger
agreement however
couldn't find any. As I understand no such agreement has been
published yet. If anyone on this forum has it please post the
location. I checked the Websites
of these two companies couldn't find anything on the BofA site. The
one on Merril Lynch site looks like a press statement which I guess
everyone has seen.
This is kind of wishy washy which brags about these two companies and
their combined strength however doesn't say exactly when this deal
will materialise.
I quote the exact statement
"The transaction is expected to close in the first quarter of 2009. It
has been approved by directors of both companies and is subject to
shareholder votes
at both companies and standard regulatory approvals."
Please note the expected statement and no concrete dates are provided
by which the deal will be over.
The first question that arises in my mind is why did Bank of America
(BAC) rush to buy Merrill (MER) at 1.8 times its book value? We
certainly understand why
Merrill took $29, and we understand that they're a good match (better
than Lehman-BOFA), but what was BOFA thinking?
If BOFA had waited a day, it probably could have bought it for $10.
Given what Lehman would have done to the market in the absence of a
Merrill deal, the
timing and price doesn't make sense.
I am not questioning the company it bought but the price at which it
agreed to buy.
There can be two answers, either BofA was made to believe by MER that
there were other bidders offering higher price or Fed Forced BAC to
buy MER to stop MER
from going bankrupt as without the buyoff news MER would have opened
below $10 on Monday and by this time may have gone bankrupt. Fed
however made sure the
deal was open ended and left enough wiggle room for BAC to exit
anytime they wanted. Fact that a deal like this which takes months to
finalize was done in
less than 48 hours also raised some eyebrows.
The second question is regarding the wide arbitrage spread between
these two stocks which I had earlier pointed out in the SELL SELL SELL
post.
On Monday it was like this
BAC 29 so MER should be at 29 X .895 = 24.9 but actually it was 23
almost $2
Lets see today's closing price
BAC = 27.20 so MER should be 27.20 = 23.36 actually it is 19.36 so the
gap has doubled to $4.
The answer Merger arbitrage funds are seemingly balking at the Bank of
America agreement to buy Merrill Lynch. As a result, the difference
between the MER
share price and the BAC offer is stuck up around 18%, which is very
high. This clearly indicates uncertainty with the deal. If it was
known for sure that the
deal would take place they would have purchased MER to match the price
with BAC.
I think the next six months will be very important which will tell
what happens to the deal.
I can think of these possibilities
1. MER turnsaround. In such a case MER shareholders won't agree to the
deal and deal doesn't go through. However MER having losses for last
four quarters is
expected to show earning of -$10 per share. So chances of MER going
green in next six months in remote.
2. BAC keeps their share price low through market manipulation to buy
MER for cheap if and when the deal is finalized. Ultimately MER share
prices drop from
now on till the deal is finalized at least six months for sure.
3. MER assets are way inflated and the exact value is unknown. Because
MER doesn't have a clue how many of the houses financed by it
indirectly will
foreclose. As per the indications foreclosures are not going to stop
anytime soon. So MER goes deeper and deeper into the red and BAC sees
that it has bitten
more than it can swallow. So two things can happen
a) BAC stands by the deal takes the losses and both BAC and MER losses
share value.
b) BAC comes out of the deal using the shareholder approval clause.
BAC rallies MER goes bankrupt.
So in all of the above scenarios except the first MER stock price is
going to go down in the coming six months.
I also googled a BAC MER Deal and almost all of them echo the
sentiment that ultimately the deal won't go through. Here are some of
the links
http://paul.kedrosky.com/archives/2008/09/17/merger_arb_spre.html
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=87011&t=010009919809452...
http://www.informationarbitrage.com/2008/09/bacmer-the-mark.html
http://www.clusterstock.com/2008/9/why-did-bank-of-america-bac-pay-29...
http://www.streetinsider.com/Insiders+Blog/Merrill+Lynch+(MER)+Tradin...
http://www.clusterstock.com/2008/9/merrill-mer-stock-down-again-will-...
If you have counter arguments to these please post as I would be happy
to know about them.
</unquote>
numbers don't lie
Have you completed yr NS?? 
......so you go figure this out for yourself 
:p
