June 30, 2005
Bank of America to buy MBNA for $35 bln
By Jonathan Stempel
NEW YORK (Reuters) - Bank of America Corp. on Thursdaysaid it agreed to buy MBNA Corp., the biggest independentcredit card lender, for $35 billion, making the No. 2 U.S. bankone of the world's largest card issuers.
The stock-and-cash transaction, which offered a premium of30.6 percent for MBNA, will more than double Bank of America'scard business, giving it 40 million cardholders and $143billion in card balances.
Bank of America said the purchase will make it the world'slargest issuer of Visa and MasterCard credit, debit and prepaidcards. It will become the leading rival in cards to CitigroupInc. and JPMorgan Chase & Co., and bigger than American ExpressCo..
"It's a perfect fit," said Ted Parrish, who manages theHenssler Equity Fund. "For Bank of America, it was the only bigdeal left."
MBNA is Bank of America Chief Executive Kenneth Lewis'second big acquisition, following the $48 billion purchase ofFleetBoston Financial Corp. in April 2004. Lewis said theaddition of MBNA's $31.2 billion of deposits will not causeBank of America to exceed the 10 percent cap on U.S. deposits.
The terms value MBNA at $27.50 per share. MBNA shareholderswill receive 0.5009 of a Bank of America share plus $4.125 incash for each MBNA share.
Michael Mayo, a Prudential Equity Group LLC analyst, saidBank of America is paying a 21 percent premium to receivablesfor MBNA, above the 17 percent that Washington Mutual Inc.agreed this month to pay in its $6.45 billion purchase ofProvidian Financial Corp., another big card issuer.
Bank of America will cut 6,000 jobs to help save $850million a year by 2007, and take a $1.3 billion restructuringcharge.
"It's a big price, but it's an expense-cutting story," saidWayne Bopp, an analyst at Fifth Third Investment Advisors.
MBNA specializes in affinity marketing, in which issuerspartner with various companies and organizations to targetgroups of customers. Lewis, who called MBNA a "sellingmachine," said MBNA cards will be rebranded with the Bank ofAmerica name.
The companies said about 7 percent of MBNA's revenue may belost because the card issuer's affiliate banks might not workwith Bank of America. Lewis said MBNA's relationship withAmerican Express hasn't yet been addressed.
Bank of America shares fell $1.10 to $45.81 in earlyafternoon trade on the New York Stock Exchange, while MBNAshares rose $5.28 to $26.33.
CONSUMER CREDIT "CUSHION"
Stuart Quint, an analyst at Gartmore Global Investments,said it might be a risky time to acquire a card issuer "whenthere are concerns about consumer credit turning."
But he said recent bankruptcy law changes that make ittougher for consumers to have card debt excused "probably givesyou a little bit of a cushion."
MBNA had been struggling amid competition from other cardissuers, and banks whose lower rates encourage consumers to payoff higher-cost debt.
MBNA Chief Executive Bruce Hammonds said MBNA had beenconsidering a sale for one year.
Hammonds, who along with other top MBNA executives on June17 survived a helicopter crash in New York's East River, willbecome president of Bank of America Card Services, reporting toconsumer banking chief Liam McGee. He will remain inWilmington, Delaware, where MBNA is based. Bank of America isbased in Charlotte, North Carolina.
Analysts said the purchase makes it unlikely that Bank ofAmerica will pursue often-rumored bids for investment bankMorgan Stanley or Britain's Barclays Plc.
Bank of America expects profit per share of $4.43 in 2006and $5 in 2007. Analysts polled by Reuters Estimates on averageforecast $4.48 and $4.87 for the periods.
Keefe, Bruyette & Woods and the law firm Cleary Gottliebadvised Bank of America. UBS Securities, Joseph Perella and thelaw firm Wachtell, Lipton, Rosen & Katz advised MBNA. (Additional reporting by Ben Berkowitz, Anna Driver, MichaelErman, Sean Farrell, Peter Kaplan, Scott Malone, MathieuRobbins and Chris Sanders)