Bank of New York Co. has agreed to take over Mellon Financial Corp. in a $16.5-billion all-stock deal that would create the world's largest securities servicing company and one of the biggest asset managers.
The deal, which is expected to be completed by the middle of next year, would combine 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 has been around since its 1869 founding by the Mellon family of financiers and philanthropists.
The new company -- which would preserve links to that heritage by calling itself Bank of New York Mellon Corp. -- would be the world's leading asset servicer, with $16.6 trillion in assets under custody.
It also would 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 Monday that they expected it would result in the elimination of about 3,900 jobs, or nearly 10% of their combined workforce 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 of Bank of New York up $4.27, or 12%, to $39.75. Shares of Pittsburgh-based Mellon rose $2.73, or 6.8%, to $42.78.
Analyst David A. George at A.G. Edwards & Sons Inc. in St. Louis said, "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."
The announcement also said Thomas Renyi, chairman and chief executive 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, would 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 in February with the retirement of longtime CEO Martin G. McGuinn.
The companies said they expected the combined company to cut costs by about $700 million a year and said the deal would result in restructuring charges of about $1.3 billion.
Bank of New York's shareholders would receive 0.9434 of a share in the new company for each share of Bank of New York that they owned, and Mellon shareholders would receive one share in the new company for each Mellon share they owned.
That means Bank of New York shareholders would get about 63% of the shares in the new company.
Charles Bralver, executive director of financial services consulting firm Mercer, Oliver Wyman, noted that the combination of the two banks would give them more heft in asset management and private banking.
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.