Credit where it's due

30 June 2005 By Rob Cox Follow @rob1cox

The last time BofA did something this bold, with Fleet, investors hated it. But the bank recovered and managed the deal superbly. Will it do the same with MBNA? Possibly. The deal stacks up financially. The question is whether the household credit boom has peaked.

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Bank of America agreed to pay about $35bn in stock and cash for MBNA, making the bank one of the world's largest credit card issuers. The deal is expected to close in the final quarter of the year.

Under terms of the agreement, MBNA shareholders will receive 0.5009 shares of Bank of America common stock for each of their shares, plus a cash component of $4.125 per share, for a total of about $27.50 a share based on Wednesday's closing prices. MBNA stock closed at $21.07 on Wednesday, implying a 31% premium.

BofA projects cost cuts of $850m aftertax, which would be fully realized in 2007, and anticipates a restructuring charge of $1.25 billion aftertax.

UBS and Joseph Perella advised MBNA. Keefe, Bruyette & Woods worked with BofA.

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