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 securities 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 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 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."
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.
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.
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.
Bank of New York shareholders will get about 63 percent of the shares in the new company.
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.
Bank of New York's acquisition of Mellon Financial would create the world's leading securities servicer with $16.6-trillion in assets under custody.
Top asset servicers
Assets in trillions of dollars
Bank of New York Mellon
Bank of New York
Source: Bank of New York AP
*Combined assets of Bank of New York and Mellon Financial
NOTE: All data as of Sept. 30