Monday, November 24, 2008
Another Flaw In The Public Equity Market
You know, when a courtroom judge has a *conflict* that might even be perceived as faintly prejudicial,...he recuses himself from the case.
But here we have this disastrous Bank of America / Merrill Lynch merger and the biased Morons who will be voting on the combination.
Click to enlarge the commentary of the Ken Lewis fan club.
There is palpable unrest, disgust, and fear from Bank of America shareholders towards the proposed Merrill Lynch takeover. Yet their voice, their vote will be offset come vote time by *cross-ownership*. Read Markets See BofA’s Deal for Merrill Lynch as Increasingly in Doubt and be sure to peruse the comment thread.
Supposedly, there are plenty of fund managers who own shares of both companies. Merrill shareholders won't in any way be voting against the merger - as their stock would in all likelihood be ZERO without the BAC lifeline, er deposit base. So, if they have proxies on the BAC side as well, they'll most definitely be voting *in block* for the merger; they'll be canceling out dissent on the Bank of America side and cementing the marriage as a *done deal*.
Now as I write this, I realize that my thesis is somewhat ill-founded.
Theoretically, funds that own both companies could sell their Merrill shares AND then vote against the union on the BAC proxy. For sure, if Bank of America backs out of (or votes down) the merger, the stock will pop. I'd say at least $5-$8 per share.
And, presumably, many funds that owned both when the merger was announced may have already dumped Merrill back the deal was announced - if they didn't like what Ken Lewis *acquired*. Make no mistake, MER is what's dragging BAC down. Go on and try, just try to find someone at Merrill that's blaming the merger for their stock's descent. If that alone doesn't tell Ken Lewis that this merger is Moronic, I don't know what would.
So I guess the bias of *cross-ownership* may already be defanged within this shareholder vote.
But then again, why should we dare underestimate the stupidity of anyone who owns BOTH of these pieces of crap???
If anyone does still own them both today, their best bet is selling MER and voting the merger down. If the merger falls apart, their BAC stock will pop considerably.
AND, if the deal goes through anyway, when BAC drops to $4 a share like Citigroup, well then they'll only have lost half of their money!
Wait. Check that. Their best bet is probably to sell them both and cut their losses.
Then they should dump the scant proceeds into commodities...