Bank of New York to Buy Mellon Financial

By EILEEN ALT POWELL
The Associated Press
Monday, December 4, 2006; 8:37 PM

NEW YORK -- Bank of New York Co. has agreed to take over Mellon Financial Corp. for stock valued at $17.6 billion in a deal that will create the world's largest securities servicing company and one of the biggest asset managers.

The combination, which is expected to be completed by the middle of next year, combines two financial institutions that are deeply steeped in American history. New York-based Bank of New York was founded in 1784 by Alexander Hamilton, who went on to become the first secretary of the U.S. Treasury. Mellon Financial, meanwhile, has been around since its 1869 founding by the Mellon family of financiers and philanthropists.

The new company _ which will preserve links to that heritage by calling itself the Bank of New York Mellon Corp. _ will be the world's leading asset servicer with $16.6 trillion in assets under custody.

It also will rank among the top 10 global asset managers with more than $1.1 trillion in assets under management.

But the companies also said in announcing the deal on Monday that they expect it will result in the elimination of about 3,900 jobs, or nearly 10 percent of their combined work force of about 40,000. They said reductions would be made through normal attrition "wherever possible."

The deal has been approved by each company's board of directors, but requires approval by regulators and shareholders.

Investors appeared to signal support on Monday by sending shares in Bank of New York shares up $4.27, or 12 percent, to close at $39.75 on the New York Stock Exchange. Shares in Pittsburgh-based Mellon rose $2.73, or 6.8 percent, to close at $42.78 on the NYSE.

The rise in Mellon's price boosted the value of the deal to $17.6 billion from the $16.5 billion price at Friday's closing share price.

Analyst David A. George with A.G. Edwards & Sons Inc. in St. Louis upgraded Mellon Financial to "buy" from "hold," saying "from our perspective, this is an excellent transaction as it creates a securities servicing and asset management behemoth that can rival any bank or asset manager in the world."

Several ratings agencies affirmed or boosted their readings for the merging banks. Standard & Poor's Ratings Services affirmed the ratings of both banks and said the outlook was stable; Fitch Ratings, affirmed the ratings of both banks and assigned a "positive outlook" to them; Moody's Investors Service affirmed its ratings on Bank of New York and put Mellon on review for "positive upgrade."

The announcement also said that Thomas Renyi, chairman and chief executive officer of Bank of New York, would lead the merger integration team as the new institution's executive chairman for 18 months. Mellon's chairman and chief executive, Robert P. Kelly, will be CEO of the merged bank and then replace Renyi when he retires.

Renyi, 60, has been CEO of the New York bank since 1997 and chairman since 1998. Kelly, 52, who had been the chief financial officer of Wachovia Corp. in Charlotte, N.C., took over at Mellon last February with the retirement of longtime chief executive Martin G. McGuinn.

The companies said they expected the combined company to cut costs by about $700 million a year and said the deal will result in restructuring charges of about $1.3 billion.

Bank of New York's shareholders will receive 0.9434 shares in the new company for each share of Bank of New York that they own, and Mellon shareholders will receive one share in the new company for each Mellon share they own.

Bank of New York shareholders will get about 63 percent of the shares in the new company.

Charles Bralver, executive director of Mercer, Oliver Wyman financial services consultancy, noted that the combination of the two banks will give them more heft in asset management and private banking, which could improve its price-earnings ratio, which is a measure of how expensive the stock is relative to other shares.

Bralver also said the combined company would provide "more formidable competition" to companies such as Boston-based State Street Corp., which is among the top providers of pensions processing and custodial servicers, as well as banks that have big custody operations, including Citigroup Inc. and JPMorgan Chase & Co.

In Pittsburgh, government officials took heart that while the new company would be headquartered in New York, it expects to leave major divisions such as cash management and stock transfer in Pittsburgh. Company officials also said that the work force in the Pittsburgh area could grow.

"Early indications are that this could potentially add 1,000 or more jobs to the region. That makes it a little different than some deals in the past," Mayor Luke Ravenstahl said, referring to other businesses that moved corporate headquarters from the city.

In a presentation to analysts, executives said that once the deal is completed, the new company would be the 11th largest bank or brokerage in the United States by market capitalization and the largest custodial bank by the same measure.

Kelly said the new company would take advantages of the different strengths of the two institutions.

"Mellon is huge in asset management and having a nice asset servicing ability as well," he said. "In contrast, Bank of New York is huge on the asset servicing side and security servicing but smaller in asset management."

Still, Kelly said, "there will be expense synergies and opportunities for saving money going forward."

The board of directors will have 10 members designated by Bank of New York and eight members designated by Mellon. Gerald L. Hassell, currently president of Bank of New York, will hold the same position in the new company.

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On the Net:

http://www.bankofny.com

http://www.mellon.com

© 2006 The Associated Press