When companies forged by the first and 49th secretaries of the US Treasury combine, a respect for history is understandable. Bank of New York, which is buying Mellon Financial, will keep its headquarters in the Big Apple. But the companies say they will not abandon Mellon’s long-standing base in Pittsburgh.
History aside, the acquisition is a good fit. Providing services for securities issuers, traders and investors – an area in which BoNY is huge and Mellon no slouch – is a fast-growing, global and technology heavy business. The deal will propel the new BoNY Mellon past JPMorgan into the top servicing spot. The combined group will also edge into the top 10 global asset managers and US wealth managers, mainly as a result of Mellon’s strength. Cost synergies, worth, say, $4bn net of transaction expenses, roughly support Monday’s gains for both companies. The notion that extra revenues might transpire, helping re-rate the shares, is also credible.
One nagging question is whether the smaller Mellon got the best price it could in the no-premium deal. Combining with BoNY gives shareholders a clearly defined growth proposition. But bigger banks such as JPMorgan or Citibank are eager to boost their servicing operations. While they might be less enthusiastic about Mellon’s asset management business, one such player might still have offered a premium. Still, their size could have swamped growth potential within Mellon, leaving shareholders no better off in the medium term. On balance, the BoNY Mellon integration risk is probably worth taking.
The deal even looks like a genuine partnership, with key managers, including the chief executive, coming from the smaller company. The tie-up was first mooted a decade ago. In today’s fevered world of leveraged buy-outs, it is a reminder that some deals still make strategic sense.
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