NEW YORK (MarketWatch) -- Merrill Lynch & Co. said Monday that it has agreed to buy First Republic Bank for $1.8 billion in cash and stock, offering a 44% premium for a deal intended to expand the brokerage giant's profitable wealth-management business to include broader banking services.
The deal also gives Merrill a commercial bank with 43 branches, primarily in California, which will make loans and take deposits, expanding the offerings at its retail brokerage business.
Merrill Lynch (MER :
Merrill Lynch & Co., Inc
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Last: 92.39-2.14-2.26%
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MER92.39, -2.14, -2.3% ) is acquiring San Francisco-based First Republic (FRC :
first rep bk san francisco com
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4:15am 01/30/2007
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FRC53.63, +15.33, +40.0% ) , which specializes in private banking services for wealthy clients, for $55 a share.
Analysts said the deal looks pricey, and Merrill shares sagged in Monday trading.
New York-based Merrill and other financial powerhouses have been targeting companies like First Republic because they can be integrated relatively cheaply, eliminating duplicate costs and adding to the profits of the parent company.
Merrill, "is paying such a high price due to the uniqueness of the First Republic franchise," Punk Ziegel analyst Dick Bove said Monday. "The firm hopes to sell First Republic customers a wider array of investment products. However, Merrill also wants to expand this franchise. It will be adding branches to First Republic at what could be an expanded pace."
Wealthy customers also use more financial services and carry higher balances and more assets, which allow firms to profit from fees both for services and based on assets under management.
Merrill said it will achieve savings by eliminating First Republic's costs related to being a listed public company. It also said it sees savings from the optimization of funding costs and cross-selling of both firms' products to customers.
