2. Edward Herlihy, Wachtell, Lipton, Rosen & Katz
Bank of America's Merrill Lynch Acquisition
The American Lawyer
By Julie Triedman
April 01, 2009
On Friday, September 12, Merrill Lynch & Co., Inc.'s then president, Gregory Fleming, was watching Lehman Brothers Holdings Inc.'s death throes and worrying that his company would be next. Fleming believed that an acquisition of Merrill by Bank of America Corporation could avert that outcome. But his first call that day wasn't to Kenneth Lewis, Bank of America's chief executive officer. Instead, it was to Edward Herlihy, Bank of America's longtime outside counsel.
Ultimately, Herlihy helped set the merger talks in motion, striking a deal with Merrill less than 48 hours later, the day before Lehman's bankruptcy filing. (The future of the newly merged bank and its management, however, appeared increasingly uncertain at press time.)
Herlihy declined to speak at length for this article. But his work this past year speaks volumes: He provided boardroom-level counsel on more than $73 billion in distressed financial institution deals in 2008, according to Dealogic. "He is just at the top of his profession," says Sullivan & Cromwell chairman H. Rodgin Cohen. "CEOs want him, and rightly so." Among his many lead roles were negotiating client JPMorgan Chase & Co.'s government-backstopped acquisition of The Bear Stearns Companies Inc. in March 2008, the first major investment bank train wreck; advising Morgan Stanley in Mitsubishi UFJ Financial Group, Inc.'s purchase of a 21 percent stake in the bank in early September, one of the last successful large cash raisings by an investment bank last year; and counseling Wells Fargo & Company in its successful stealth bid for Wachovia Corporation-for which Wachovia left Citigroup Inc. at the altar in October.
Clients say Herlihy's quarter-century as a bank M&A strategist makes him particularly attuned to timing-whom to call, and when to call them. "He's a great listener," says former U.S. Department of the Treasury general counsel Robert Hoyt, who tapped Herlihy as strategic counsel alongside Wachtell's Harold Novikoff for work leading to the Fannie Mae and Freddie Mac conservatorships. "He has tremendous instincts-and he knows all the people involved at the highest levels of Wall Street."
With all the concurrent demands on him late last year, Herlihy probably could have used a clone. December was especially busy, as Herlihy was juggling a thorny GMAC Financial Services rescue strategy he had helped devise and bad news in the Bank of America-Merrill deal.
GMAC, facing almost certain bankruptcy, was in the midst of an all-hands-on-deck effort to become a bank holding company and thus gain access to Troubled Asset Relief Program rescue funds. By late December, it was clear the giant auto lender would not collect enough capital from a massive debt-for-equity swap to meet the Federal Reserve's core capital requirements. Herlihy and his team appealed to regulators to relax those requirements; GMAC was ultimately permitted to become a bank on Christmas Eve.
Early that same month, Bank of America's shareholders approved the Merrill deal. But by mid-December, Lewis learned that Merrill had lost a staggering $13 billion the previous two months. Lewis spoke to the board about abandoning the deal, armed with Herlihy's sense that the bank now had legal grounds to walk away from the agreement.
Herlihy was dispatched to take the message to the Treasury Department. His first call was to Kendrick Wilson III, a longtime friend from The Goldman Sachs Group, Inc., who had been appointed Paulson's special adviser on financial institutions. In mid-January, after a month of back-and-forth, the federal government agreed to provide Bank of America with an additional $20 billion and to backstop potential Merrill losses on $118 billion in troubled assets.
The merger was salvaged. But Herlihy has been unable to save his longtime client from embarrassment. In December it was disclosed that Merrill paid out $4 billion in bonuses to its executives just before the deal was sealed-and that Bank of America, in its merger agreement last September, had authorized the payout. "I wasn't involved," Herlihy says of the bonus payout. "And the jury's still out whether the merger is going to be successful."
See all 25 of our Dealmakers of the Year, from the April 2009 issue of The American Lawyer.
Photo: Wachtell, Lipton, Rosen & Katz
