Bank of America buys out MBNA Corp for $35 bn

NEW YORK: Charlotte, North Carolina-based Bank of America is buying out MBNA Corporation, the largest independent credit card operator in the U.S. for $35 billion. The acquisition will push the No 2 U.S. bank (and No 5 credit card operator) as the world’s top card operator, with 40 million card holders on its rolls and as the largest issuer of debit, prepaid and credit cards from Visa and Mastercards.

The deal will also bring in a business balance of $143 billion to the bank.

The stock-and-cash deal values each MBNA share is valued at $27.50 (a 36 per cent premium) and the company’s shareholders will get 0.5009 of a Bank of America share and $4.125 in cash for each MBNA share.

This is Bank of America’s second big acquisition after the $48 billion purchase of FleetBoston Financial Corp. in April 2004.

The bank’s chairman and chief executive Kenneth Lewis said the acquisition will bring in $31.2 billion in deposits, but it will not exceed the stipulated 10 per cent cap on U.S. deposits.

“Today’s announcement is not only about the creation of one of the world’s largest card providers,” Mr Lewis said. “That is compelling in and of itself. But it’s really a much larger story about two companies with complementary strengths.”

The acquisition will see job cuts to the extent of 6,000 from a combined workforce of 200,000 in order to have savings of $850 million a year by 2007 and to claim a restructuring charge of $1.3 billion.

The bank intends to rebrand MBNA cards with the bank’s name. This may result in some revenue loss as some of the existing MBNA co-branding companies are banks that may not want to continue with the arrangement. MBNA has a number of co-branded cards, called affinity cards, in alliance with several organization.

The deal has been been negotiated and concluded at super speed. It is also linked to a helicopter accident — happened on 17 June — in which several senior MBNA executives, including chief executive Bruce Hammonds were travelling. They escaped the crash that landed them in New York’s East River, apparently while returning from negotiations for a possible acquistion of the company by Wachovia Corporation. The publicity of too many senior officials of the company travelling together and the subsequent rejection of the offer by Wachovia’s board had put MBNA officers in an unpleasant situation. The deal with Bank of America was worked out against this background and Hammonds approached the bank on 22 June and the deal was through on 30 June.

Post-acquistion, the bank said, 55 per cent of its earnings will be from global consumer and small business banking, 17 per cent from global business and financial services, 11 per cent from global capital markets and investment banking and 10 per cent from global wealth and investment management.

The bank had earlier this month announced a $3bn investment in the equity of China Construction Bank.

Recently, JP Morgan Chase had bought BankOne for $59 billion and Wachovia Corporation acquired South Trust Corporation for $14 billion.