Eight years after turning its back on the Canadian retail market, Merrill Lynch has charged back in, checkbook in hand, and closed a deal that could allow it to quickly emerge as a retail powerhouse in Canada.
The $855 million (U.S.) stock acquisition of Midland Walwyn is a high price--about $700,000 per Midlands 1,275 reps, with some investment banking and asset management operations thrown in.
But Merrill gets a unified North American presence, an experienced Canadian work force spread across 116 offices, and an organization with a management style and philosophy similar to its own. As Canadas largest non-bank-owned brokerage, Midland Walwyn has been fiercely independent, and both demanding and supportive of its producers.
This is a good fit and one thats goes well with Merrills strategy of expanding its global retail business, says Charles Vincent, an analyst for PNC Institutional Investment Services, in Philadelphia.
Merrill comes in at a time when theres a Midland drive under way to increase the producer force to 2,000 within the next three years, a goal that many say will be easier to accomplish once the name Merrill Lynch Canada goes up on the door.
Lets face it, with their name recognition and the level of support they can give their sales force, they should have no trouble attracting top talent, says one Toronto-based Nesbitt Burns broker.
In fact, in its quest to hire more brokers, Merrill Canada could start recruiting the more than 250 brokers it cut loose in 1990 when it sold its retail operations to CIBC Wood Gundy. Despite the firms unceremonious cut and run from the Canadian market back then, former Merrill brokers still have nothing but praise for the firm.
Sure its a tough environment to work in, says one former Merrill broker in Toronto. But its the kind of place that always supports its producers.
Compensation questions still remain. Merrill is expected to retain Midlands attractive recruiting packages, as well as payouts that average about 10 percentage points higher than what the firm pays in the states.
According to a statement issued by Midlands CEO Robert Schultz, who will head Merrill Lynch Canada, the companys pay scale will stay in place despite the takeover. Although Merrills spokespeople in New York refused to comment on the compensation matter, one key executive at Midland, who was part of the negotiations with Merrill, says the U.S. firm is clearly aware of Canadian pay standards and is prepared to live with them. Merrills here for one reason only, he says, to take advantage of our expanding economy and the close ties between the U.S. and Canadian industry. Theres no advantage to disenfranchise a work force they just paid a lot of money to acquire.
Although the executives of Canadas major bank-owned brokerages have been downplaying Merrills arrival, sources say many competitors are concerned about the firm with the highest name recognition in the world suddenly returning to their doorstep.
Competing firms are particularly galled that Merrill may get a jump on them in their own market while their own expansion plans are bogged down by regulators who have yet to give final approval to their mergers. But at least one brokerage executive, Garrett Herman, CEO of Toronto-headquartered Loewen Ondaajtie McCutcheon Ltd., sees the Merrill move in less measured terms.
Anyway you look at it, this is a major deal. Look at all the attention that was heaped on CIBCs purchase of Oppenheimer last year, Herman says. This one dwarfs that in importance, and it certainly makes Merrill the place to turn to for cross-border deals.
Even more worrisome for Canadian competitors is the possibility that Merrill itself could be taken over by a big bank.
If a bank like Chase Manhattan bought Merrill, youd suddenly have a combined financial services firm here with more capital than all the Big Six firms combined, says one CIBC Wood Gundy executive.