Bank of America has agreed to buy credit card services giant MBNA for $35 billion (£19.4 billion).
The deal will make Bank of America one of the largest card issuers in the United States, with $143 billion in managed outstanding balances and 40 million active accounts. The bank said it had agreed the cash and stock offer in order to enhance its product mix and customer reach.
The deal will lead to $850 million in savings from measures including the reduction of 6,000 jobs, the company said.
The terms of the deal are that Bank of America will pay 0.5009 of a share of its stock for each share of MBNA as well as $4.125 a share in cash. That translates into a value of $27.50 per MBNA share, a 30.5 per cent premium over MBNA’s closing price of $21.07 yesterday.
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The agreement has been approved by both boards of directors and is subject to approval by regulators and MBNA shareholders. The deal is expected to close in the fourth quarter of 2005.
“The acquisition dramatically increases the bank’s opportunity to deepen customer relationships across the full breadth of the company by delivering innovative deposit, lending and investment products and services to MBNA’s customer base,” Bank of America said.
Kenneth Lewis, the chief executive of Bank of America, said the deal made strategic sense for both companies’ customers and shareholders.
“The deal provides us access to MBNA’s attractive portfolio as well as their leading product, service and marketing capabilities. We can now deepen existing and future customer relationships with differentiated capabilities to exceed customer expectations and grow market share,” Mr Lewis said.
“This merger also provides us with an attractive foothold in Canada, the United Kingdom, Spain and Ireland.”
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It is the second major purchase engineered by Mr Lewis since he took the top job at Bank of America in 2001. In April last year the company paid $48 billion for FleetBoston, giving it 10 per cent of domestic current accounts, the maximum allowed under American law.
Earlier this month, Bank of America also agreed to take a 9 per cent stake in China Construction Bank for $3 billion.
Art Hogan, market strategist for Jefferies and Co., said the deal had taken Wall Street by surprise
“Bank of America has been acquisitive in the past and it had been looking at fresh targets, but the likes of a deal the size of MBNA had not been expected,” Mr Hogan said.
Shares of Bank of America fell 91 cents to $46.00 on news of the deal but shares of MBNA rose $5.53 to $26.60.