DEALTALK-Bank of America-Merrill vote now one of necessity

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By Elinor Comlay and Jonathan Stempel

NEW YORK, Dec 2 (Reuters) - Bank of America Corp (BAC.N) and Merrill Lynch & Co MER.N shareholders may vote "yes" on the companies' merger because of the consequences of voting "no."

Merrill was arguably saved from extinction when it agreed to merge on Sept. 15, an hour before Lehman Brothers Holdings Inc (LEHMQ.PK) filed for bankruptcy. The fear was that Merrill could be next if shareholders and trading partners fled, as many did at Lehman and the former Bear Stearns Cos.

The value of the all-stock merger had fallen by Monday to about $19 billion from an original $50 billion on concern a deep economic recession would cause credit losses to soar and require Bank of America to raise plenty of dilutive capital.

Still, Bank of America and Merrill shareholders are expected to vote on Friday morning for the merger -- at Bank of America because of the potential long-term benefits, and at Merrill because voting "no" could be a death sentence.

Merrill representatives could not immediately be reached for comment.

Merging "is more important for Merrill," said Cassandra Toroian, chief investment officer at Bell Rock Capital LLC in Paoli, Pennsylvania, which owns Bank of America shares.

"Do I wish it wasn't at this price?" she said. "Yes, but long-term shareholders recognize it's truly an opportunity."

Merrill may appear pricey after JPMorgan Chase & Co (JPM.N) paid $1.9 billion for Washington Mutual Inc's (WAMUQ.PK) bank assets, and Wells Fargo & Co (WFC.N) agreed to buy Wachovia Corp WB.N, valued Monday at $10.1 billion.

But the merger has already won the blessings of the U.S. Federal Reserve and major shareholder advisers. Bank of America must hold a vote because Merrill shareholders would own close to one-fourth of the bank. A closing is expected this month.

Adding Merrill would lift Charlotte, North Carolina-based Bank of America above JPMorgan and Citigroup Inc (C.N) as the largest U.S. bank by assets.

Bank of America would have the largest U.S. retail bank and brokerage, and one of the world's largest wealth managers and investment banks. It expects $7 billion of annual cost savings, but has not said where. CNBC television said on Monday that the merged entity could cut 10,000 jobs, mostly from Merrill.

Both companies have declined to detail expected cost cuts.

Merrill shareholders would receive 0.8595 of a Bank of America share for each of their shares. As of Monday's close, Merrill shares traded at an 8.3 percent discount to the price implied by Bank of America's offer, suggesting that some investors still believe the merger will not happen. That spread, however, was more than twice as large two months ago.

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