Bank of America is Overpaying for Merrill Lynch

It just doesn't make sense.

On a night when they could have picked up Lehman Bros. for $1, but obviously chose not to because they couldn't get their hands around the liabilities and couldn't get the US government to provide Bear-like liability limitation, Bank of America chose to purchase Merrill for $44 billion of $29 a share. Why?

The first thing that you do is hand it to John Thain, Merrill's CEO. He obviously cleaned up Merrill's balance sheet to the point where it could be easily understood and the liabilities would be able to be tolerated. But, then who knows? Bank of America acquired Countrywide in spite of the fact that that it brought extraordinary liabilities which they did not understand.

Whether Bank of America understood the liabilities, they certainly could have picked up Merrill for a lot less than $29. With the stock going out at $17 on Friday and Lehman's failure imminent, a $22 price would have looked very good to Merrill's shareholders this morning. Moreover, if Ken Lewis could have waited until the market opened on Monday, Merrill would have lost half of its value and could have been bought for a song. With Lehman gone, attention certainly would have turned to Merrill's viability. The stock, which went out of Friday at $17, certainly would have lost half of its value would have opened at $8 and have been purchased for about $14.

The acquisition itself makes sense for so many reasons, but Bank of America shareholders need to be rubbing their chins and wondering why Bank of America overpaid by at least a factor of 2, or in this case at least $22 billion.