Registration No. 333-[ • ]

As filed with the Securities and Exchange Commission on May 7, 2007

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

MERRILL LYNCH & CO., INC.

(Exact Name of Registrant as Specified in Its Charter)

 

4 World Financial Center

New York, New York 10080

(212) 449-1000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Richard Alsop, Esq.

General Counsel Corporate Law

Merrill Lynch & Co., Inc.

222 Broadway — 17th Floor

New York, New York 10038

(212) 449-1000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

Copies to:

 

 

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective and upon completion of the transaction described in the enclosed proxy statement/prospectus.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (“Securities Act”), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

PRELIMINARY DRAFT DATED MAY 7, 2007, SUBJECT TO COMPLETION

 

Proxy Statement for First Republic Bank Special Meeting

 

Prospectus for Merrill Lynch & Co., Inc.

 

 

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

 

Merrill Lynch & Co., Inc., or Merrill Lynch, and First Republic Bank, or First Republic, are proposing a merger transaction in which First Republic will be merged with and into Merrill Lynch’s wholly owned federal savings bank subsidiary, Merrill Lynch Bank & Trust Co., FSB, or ML Bank. ML Bank will be the surviving entity in the merger. The board of directors of First Republic has unanimously adopted the plan of merger contained in the Agreement and Plan of Merger, or merger agreement, dated as of January 29, 2007, among Merrill Lynch, First Republic and ML Bank.

 

If the merger is completed, you will be entitled to receive, at your election (but subject to proration and adjustment as provided in the merger agreement), cash or Merrill Lynch common stock, in either case having a value equal to $55.00 for each share of First Republic common stock you own immediately prior to completion of the merger. As explained in more detail in this document, the value of the consideration that you will receive upon completion of the merger will be approximately the same regardless of whether you make a cash election or a stock election based on the Merrill Lynch stock price used to calculate the merger consideration. If you elected to receive Merrill Lynch common stock for your shares of First Republic common stock, you would receive, based on the closing price of Merrill Lynch common stock on [ • ], 2007, 0.[ • ] shares of Merrill Lynch common stock for each of your shares of First Republic common stock. On January 26, 2007, the last trading day before the merger was publicly announced, the closing price of Merrill Lynch common stock was $94.53, which, based on the closing price on that date, if you elected to receive Merrill Lynch common stock, would entitle you to receive 0.5818 shares of Merrill Lynch common stock for each of your shares of First Republic common stock. The shares of Merrill Lynch common stock to be issued in the merger will be listed on the New York Stock Exchange under the symbol “MER.” Based on the current number of shares of First Republic common stock outstanding and reserved for issuance under employee benefit plans and other arrangements, Merrill Lynch expects to issue approximately [ • ] shares of common stock to First Republic stockholders in the aggregate upon completion of the transaction. However, any increase or decrease in the number of shares of First Republic common stock outstanding or any increase or decrease in the market price of Merrill Lynch common stock that occurs for any reason prior to completion of the merger would cause the actual number of shares issued in the merger to change.

 

At First Republic’s special meeting of its stockholders, or the Special Meeting, you will have the opportunity to vote on the approval of the plan of merger contained in the merger agreement, and you are cordially invited to attend the Special Meeting at [ • ], on [ • ], [ • ], 2007, at [ • ], local time. The First Republic board of directors unanimously recommends that holders of First Republic common stock vote “FOR” the approval of the plan of merger contained in the merger agreement.

 

Your Vote Is Very Important.  Approval of the plan of merger contained in the merger agreement requires the affirmative vote of a majority of the voting power of First Republic stockholders entitled to vote at the First Republic Special Meeting. Whether or not you plan to attend the Special Meeting, please take the time to vote by completing and mailing the enclosed proxy card to us. We urge you to vote, because if a First Republic stockholder fails to vote or abstains, this will have the same effect as a vote against approval of the plan of merger. If your shares are held in “street name,” you must instruct your broker in order to vote.

 

This proxy statement/prospectus contains detailed information about the Special Meeting, the proposed merger, documents related to the merger and other related matters, and we urge you to read it carefully, including the section entitled “Risk Factors” beginning on page 21. In addition, you may obtain information about Merrill Lynch and First Republic from documents that each has filed with the Securities and Exchange Commission, or SEC, and the Federal Deposit Insurance Corporation, or FDIC, respectively. You should also obtain current market quotations for both Merrill Lynch and First Republic common stock. The common stock of both Merrill Lynch and First Republic is listed on the New York Stock Exchange, under the symbols “MER” and “FRC,” respectively.

 

NONE OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE FEDERAL DEPOSIT INSURANCE CORPORATION HAS APPROVED OR DISAPPROVED THE MERRILL LYNCH COMMON STOCK TO BE ISSUED TO FIRST REPUBLIC STOCKHOLDERS IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/ PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The securities to be issued in the merger are not savings or deposit accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

The date of this proxy statement/prospectus is [ • ], 2007, and it is first being mailed or otherwise delivered to First Republic stockholders on or about [ • ], 2007.

 

ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about Merrill Lynch and First Republic from documents that are not included in or delivered with this document. This information is available to you without charge upon your written or oral request. With respect to Merrill Lynch, you can obtain documents incorporated by reference into this document through the SEC’s website at http://www.sec.gov. With respect to First Republic, you can obtain documents incorporated by reference into this document through the FDIC’s offices or, in some cases, through First Republic’s website at http://www.firstrepublic.com. Except for the documents specifically incorporated by reference into this proxy statement/prospectus, information contained on Merrill Lynch’s or First Republic’s website or that can be accessed through their respective websites is not incorporated by reference into this proxy statement/prospectus. You can also obtain documents incorporated by reference by requesting them in writing or by telephone from the appropriate company:

 

 

Please note that copies of the documents provided to you will not include exhibits, unless exhibits are specifically incorporated by reference in the documents or this proxy statement/prospectus.

 

If you would like to request documents, please do so by [ • ], 2007 in order to receive them before the Special Meeting.

 

In addition, if you have questions about the merger or the Special Meeting, need additional copies of this document or wish to obtain proxy cards or other information related to the proxy solicitation, you may contact the individual listed below. You will not be charged for any of these documents that you request.

 

Attention: Frederick J. Marquardt

Morrow & Co., Inc.

470 West Avenue

Stamford, Connecticut 06902

Tel: (203) 658-9400

 

For additional information about documents incorporated by reference into this proxy statement/prospectus, please see the section entitled “Where You Can Find More Information” beginning on page 93.

FIRST REPUBLIC BANK

 

111 Pine Street
San Francisco, California 94111
(415) 392-1400

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [ • ], 2007

 

To The Stockholders of First Republic Bank

 

NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders of First Republic Bank, a Nevada banking corporation, or First Republic, will be held at [ • ] [am/pm] local time on [ • ], [ • ], 2007, at the [ • ] for the following purposes:

 

 

In the merger, a holder of common stock will be entitled to receive, at his, her or its election (but subject to proration and adjustment as provided in the merger agreement), cash or Merrill Lynch common stock, in either case having a value equal to $55.00 for each share of First Republic common stock owned immediately prior to completion of the merger. As explained in more detail in the proxy statement/prospectus, the value of the consideration that you will receive upon completion of the merger will be approximately the same regardless of whether you make a cash election or a stock election is made based on the Merrill Lynch stock price used to calculate the merger consideration.

 

Please review the proxy statement/prospectus accompanying this notice for more detailed information regarding the merger and the First Republic Special Meeting.

 

Pursuant to First Republic’s Bylaws, the First Republic board of directors has fixed the close of business on May 7, 2007 as the record date for the determination of stockholders entitled to receive notice of and, in the case of common stockholders, to vote at the Special Meeting. Only First Republic stockholders of record at the close of business on that date are entitled to notice of, and, in the case of common stockholders, to vote at, the Special Meeting and any adjournments or postponements of the Special Meeting. Holders of a majority of the outstanding shares of First Republic’s common stock must be present either in person or by proxy in order for the Special Meeting to be held and it is important that your shares be represented at the Special Meeting regardless of the number of common shares that you hold. Abstentions and broker non-votes will be counted towards the presence of a quorum.

 

In order for the plan of merger to be approved by First Republic stockholders, a majority of the voting power of First Republic stockholders entitled to vote must be voted in favor of approving the plan of merger. Abstentions, failures to vote and broker non-votes will have the same effect as a vote against approval of the plan of merger. All First Republic stockholders entitled to notice of, and to vote at, the Special Meeting are cordially invited to attend the Special Meeting in person. However, if you are a common stockholder, to ensure your representation at the Special Meeting, please submit your proxy by mail, by telephone or through the Internet, in each case, with voting instructions. The submission of a proxy will not prevent a holder of common stock from voting in person. Any holder of First Republic common stock entitled to vote

who is present at the Special Meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked in writing at any time before the vote is taken at the Special Meeting. If you are a holder of common stock, wish to attend the Special Meeting and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.

 

Holders of First Republic preferred stock and holders of depositary shares representing First Republic preferred stock are not, as such, entitled to and are not being requested to vote at the Special Meeting.

 

Holders of shares of First Republic preferred stock may be entitled to assert dissenters’ rights under provisions of Nevada law, the text of which are included as Annex C to the proxy statement/prospectus.

 

The list of the stockholders entitled to vote at the Special Meeting will be available during ordinary business hours at First Republic’s principal business offices, located at 111 Pine Street, San Francisco, California 94111, beginning on [ • ], 2007. The stockholder list will also be available at the Special Meeting.

 

The above matters are described in more detail in the accompanying proxy statement/prospectus.

 

By Order of the Board of Directors

 

James H. Herbert, II, President

 

San Francisco, California

[ • ], 2007

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

SUMMARY

		Hypothetical per				Hypothetical per
		Share Stock				Share Cash
		Consideration for				Consideration for
Hypothetical Price of		First Republic				First Republic
Merrill Lynch Common Stock		Common Stockholders				Common Stockholders
$86.00			0.6395			$	55.00
$90.00			0.6111			$	55.00
$94.00			0.5851			$	55.00
$98.00			0.5612			$	55.00

	•	by mutual consent of the parties;

	•	by either Merrill Lynch or First Republic if:

	•	the merger is not completed by October 31, 2007, unless the terminating party failed to comply with any provision of the merger agreement and thereby caused, or materially contributed to, the failure of the merger to occur by that date;
	•	the First Republic common stockholders vote against approval of the plan of merger contained in the merger agreement;
	•	there exists any final nonappealable legal prohibition on completion of the merger by a governmental authority, unless the terminating party failed to comply with any provision of the merger agreement and thereby caused, or materially contributed to, such prohibition; or
	•	the other party materially breaches any of its representations, warranties, covenants or other agreements contained in the merger agreement, and the breach results in the failure of the applicable merger condition and is not cured within 30 days after written notice of the breach is given by the terminating party;

	•	by Merrill Lynch if the First Republic board of directors submits the plan of merger to First Republic stockholders without a recommendation for approval or withdraws or adversely modifies its recommendation (or discloses its intention to withdraw or adversely modify its recommendation); or the First Republic board of directors recommends (or discloses its intention to recommend) to its stockholders an acquisition proposal other than the merger; or the First Republic board of directors negotiates or authorizes the conduct of negotiations (and ten days have elapsed without such negotiations being discontinued) with a third party regarding an acquisition proposal other than the merger; or
	•	by First Republic, if the First Republic board of directors withdraws or adversely modifies its recommendation to the First Republic stockholders after giving Merrill Lynch written notice and at least five business days to respond.

	•	the merger agreement is terminated:

	•	by either Merrill Lynch or First Republic if the First Republic stockholders vote against approval of the plan of merger;
	•	by Merrill Lynch if the First Republic board of directors submits the plan of merger to the First Republic stockholders without a recommendation for approval or otherwise withdraws or adversely modifies its recommendation (or discloses its intention to withdraw or adversely modify its recommendation); or the First Republic board of directors negotiates or authorizes the conduct of negotiations (and ten days have elapsed without such negotiations being discontinued) with a third party regarding an acquisition proposal other than the merger; or
	•	by First Republic if the First Republic board of directors withdraws or adversely modifies its recommendation to the First Republic stockholders after giving Merrill Lynch written notice and at least five business days to respond; AND

	•	at any time prior to the vote of the First Republic common stockholders, a bona fide acquisition proposal with respect to First Republic has been made public and not withdrawn or abandoned; AND
	•	within 15 months from the date of such termination, an acquisition proposal with respect to First Republic is consummated or a definitive agreement is entered into by First Republic with respect to an acquisition proposal with respect to First Republic, but only if such acquisition proposal is consummated.

	•	the merger agreement is terminated:

	•	by Merrill Lynch if First Republic materially breaches any of its representations, warranties, covenants or other agreements contained in the merger agreement, and the breach results in the failure of the applicable merger condition and is not cured within 30 days after written notice of the breach is given by Merrill Lynch; or
	•	by either Merrill Lynch or First Republic if the merger is not completed by October 31, 2007, unless the terminating party failed to comply with any provision of the agreement and thereby caused, or materially contributed to, the failure of the merger to occur by that date; AND

	•	at any time prior to such termination, a bona fide acquisition proposal with respect to First Republic has been made public and not withdrawn or abandoned, and following the announcement of such acquisition proposal, First Republic has breached any of its representations, warranties, covenants or agreements set forth in the merger agreement and (i) such breach was a willful and material breach of certain designated provisions of the merger agreement or (ii) such breach was not a willful and material breach of certain designated provisions and an acquisition proposal with respect to First Republic is consummated or a definitive agreement with respect to such an acquisition proposal is entered into within 15 months from the date of such termination, but only if such acquisition proposal is consummated.

		Merrill Lynch Common				First Republic Stock
		Stock Closing Price				Closing Price
January 26, 2007		$	94.53			$	38.30
[ • ], 2007		$	[ • ]			$	[ • ]

	•	to approve the plan of merger contained in the merger agreement; and
	•	to transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting, if necessary, including to solicit additional proxies.

 

SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF MERRILL LYNCH

		At and For the
		Three Months
		Ended Last								At and For the Twelve Months Ended
		Friday in March								Last Friday in December
		2007				2006(1)				2006				2005				2004				2003				2002
(Dollars in millions, except per share amounts)
Results of Operations
Total revenues		$	21,475			$	15,571			$	70,591			$	47,796			$	32,619			$	27,924			$	28,361
Less interest expense			11,621				7,599				35,932				21,774				10,560				8,024				9,990
Net revenues			9,854				7,972				34,659				26,022				22,059				19,900				18,371
Non-interest expenses			6,759				7,379				24,233				18,791				16,223				14,680				16,059
Earnings before income taxes			3,095				593				10,426				7,231				5,836				5,220				2,312
Income tax expense			937				118				2,927				2,115				1,400				1,384				604
Net earnings		$	2,158			$	475			$	7,499			$	5,116			$	4,436			$	3,836			$	1,708
Net earnings applicable to common stockholders(2)		$	2,106			$	432			$	7,311			$	5,046			$	4,395			$	3,797			$	1,670
Financial Position
Total assets		$	981,814			$	732,240			$	841,299			$	681,015			$	628,098			$	480,233			$	440,252
Short-term borrowings(3)			20,171				14,354				284,226				221,389				180,058				111,727				98,371
Deposits			84,896				81,119				84,124				80,016				79,746				79,457				81,842
Long-term borrowings			205,422				134,712				181,400				132,409				119,513				85,178				79,788
Junior Subordinated Notes (related to trust preferred securities)			3,452				3,092				3,813				3,092				3,092				3,203				3,188
Total stockholders’ equity			41,707				37,825				39,038				35,600				31,370				28,884				24,081
Common Share Data
(In thousands, except per share amounts)
Earnings Per Share:
Basic		$	2.50			$	0.49			$	8.42			$	5.66			$	4.81			$	4.22			$	1.94
Diluted		$	2.26			$	0.44			$	7.59			$	5.16			$	4.38			$	3.87			$	1.77
Weighted-average shares outstanding:
Basic			841,299				883,737				868,095				890,744				912,935				900,711				862,318
Diluted			930,227				981,085				962,962				977,736				1,003,779				980,947				947,282
Shares outstanding at year-end			876,880				933,443				867,972				919,201				931,826				949,907				873,780
Book value per share		$	42.25			$	37.19			$	41.35			$	35.82			$	32.99			$	29.96			$	27.07
Dividends paid per share		$	0.35			$	0.25			$	1.00			$	0.76			$	0.64			$	0.64			$	0.64

		At and For the
		Three Months
		Ended Last								At and For the Twelve Months Ended
		Friday in March								Last Friday in December
		2007				2006(1)				2006				2005				2004				2003				2002
(Dollars in millions, except per share amounts)
Financial Ratios
Pre-tax profit margin			31.4%				7.4%				30.1%				27.8%				26.5%				26.2%				12.6%
Common dividend payout ratio			14.0%				51.0%				11.9%				13.4%				13.3%				15.2%				33.0%
Return on average assets(5)			1.0%				0.9%				0.9%				0.7%				0.8%				0.8%				0.4%
Return on average common stockholders’ equity(5)			23.2%				5.1%				21.3%				16.0%				14.9%				14.8%				7.5%
Other Statistics
Full-time employees:
U.S.			47,200				43,400				43,700				43,200				40,200				38,200				40,000
Non-U.S.			13,100				12,100				12,500				11,400				10,400				9,900				10,900
Total(4)			60,300				55,500				56,200				54,600				50,600				48,100				50,900
Private client financial advisors			15,930				15,350				15,880				15,160				14,140				13,530				14,010
Private client assets (dollars in billions)		$	1,648			$	1,502			$	1,619			$	1,458			$	1,359			$	1,267			$	1,098

(1)		First quarter 2006 earnings before income taxes include the impact of $1.8 billion of one-time compensation expenses incurred in connection with the adoption of SFAS 123(R).
(2)		Net earnings less preferred stock dividends.
(3)		Consists of payables under repurchase agreements and securities loaned transactions and short-term borrowings.
(4)		Excludes 100, 200, 100, 200, and 1,500 full-time employees on salary continuation severance at year-end 2006, 2005, 2004, 2003 and 2002, respectively, and 200 and 300 full time employees on salary continuation severance at March 30, 2007 and March 31, 2006, respectively.
(5)		For the three months ended, return on average assets and return on average common stockholders’ equity were calculated based on annualized figures.

 

SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF FIRST REPUBLIC

		At and For the Three Months
		Ended March 31,								At and For the Twelve Months Ended December 31,
		2007				2006				2006				2005				2004				2003				2002
(Dollars in thousands, except per share and ratio data)
Selected Financial Data
Interest income		$	172,873			$	129,545			$	598,324			$	423,423			$	289,812			$	249,983			$	244,840
Interest expense			90,951				58,742				307,556				169,773				87,758				85,210				102,471
Net interest income			81,922				70,803				290,768				253,650				202,054				164,773				142,369
Provision for loan and lease losses			—				—				—				4,000				5,000				7,000				6,500
Net interest income after provision for loan and lease losses			81,922				70,803				290,768				249,650				197,054				157,773				135,869
Noninterest income			23,623				19,340				87,369				72,913				61,944				64,176				45,300
Noninterest expense			93,809				61,915				271,446				216,616				172,914				148,999				131,448
Net income			2,976				17,220				69,172				60,827				46,499				37,050				26,401
Net income available to common stockholders		$	1,106			$	15,350			$	61,692			$	54,015			$	42,543			$	37,050			$	26,401
Share and Per Share Data
Common shares outstanding			31,111				26,613				30,962				26,359				24,675				23,346				21,812
Weighted average diluted shares			31,270				26,967				28,009				26,029				24,841				23,221				23,519
Book value per common shares		$	21.42			$	18.06			$	21.74			$	17.80			$	15.73			$	14.21			$	12.98
Dividends paid per common share		$	0.15			$	0.125			$	0.575			$	0.475			$	0.367			$	0.25			$	—
Selected Operating Ratios
Return on average assets			0.10	%			0.74	%			0.67	%			0.73	%			0.69	%			0.68	%			0.58	%
Return on average common stockholders equity			0.65	%			13.03	%			11.64	%			12.63	%			11.81	%			12.07	%			10.01	%
Net interest margin			3.13	%			3.31	%			3.15	%			3.33	%			3.24	%			3.21	%			3.25	%

		At and For the Three Months
		Ended March 31,								At and For the Twelve Months Ended December 31,
		2007				2006				2006				2005				2004				2003				2002
Selected Balance Sheet Data
Total assets		$	11,698,247			$	9,579,684			$	11,634,534			$	9,319,910			$	7,422,997			$	6,002,943			$	4,854,695
Cash and investment securities			2,516,782				2,002,919				2,604,411				1,791,496				954,967				807,535				822,135
Total loans			8,318,434				6,786,417				8,209,198				6,656,334				5,461,878				4,481,170				3,707,149
Customer deposits			9,460,594				8,053,639				8,920,721				7,019,048				5,604,582				4,582,896				3,626,149
Federal Home Loan Bank advances and other borrowings			1,136,751				639,500				1,590,331				1,429,500				1,068,000				829,000				740,500
Subordinated debentures and notes			63,770				63,770				63,770				63,770				63,770				63,770				70,237
Minority interest in subsidiaries			148,590				148,590				148,590				148,590				148,590				148,740				89,000
Total stockholders’ equity		$	781,299			$	595,727			$	788,185			$	584,120			$	453,094			$	331,669			$	283,179
Selected Asset Quality Ratios
Nonperforming assets to total assets			0.10	%			0.10	%			0.10	%			0.08	%			0.25	%			0.22	%			0.33	%
Allowance for loan and lease losses to total loans			0.62	%			0.64	%			0.63	%			0.60	%			0.65	%			0.70	%			0.77	%
Net recoveries (charge-offs) to average total loans			0.01	%			0.22	%			0.06	%			0.02	%			(0.01	)%			(0.10	)%			(0.01	)%
Capital Ratios
Leverage ratio			6.52	%			7.09	%			6.55	%			7.17	%			6.90	%			6.11	%			5.98	%
Tier 1 risk-based capital ratio			9.72	%			10.91	%			9.63	%			11.06	%			10.19	%			9.18	%			9.59	%
Total risk-based capital ratio			11.15	%			12.71	%			11.16	%			12.83	%			12.71	%			13.21	%			13.45	%

 

COMPARATIVE PER SHARE DATA

		At or For the Three				At or For the Twelve
		Months Ended				Months Ended
		March 30, 2007				December 29, 2006
Basic earnings per share
Historical		$	2.50			$	8.42
Pro forma (unaudited)		$	2.48			$	8.41
Diluted earnings per share
Historical		$	2.26			$	7.59
Pro forma (unaudited)		$	2.24			$	7.59
Dividends per share
Historical		$	0.35			$	1.00
Pro forma (unaudited)		$	0.35			$	1.00
Book value per share
Historical		$	42.25			$	41.35
Pro forma (unaudited)		$	42.78			$	41.90

		At or For the Three				At or For the Twelve
		Months Ended				Months Ended
		March 31, 2007				December 31, 2006
Basic earnings per share
Historical		$	0.04			$	2.33
Pro forma equivalent (unaudited)		$	1.44			$	4.89
Diluted earnings per share
Historical		$	0.04			$	2.21
Pro forma equivalent (unaudited)		$	1.31			$	4.41
Dividends per share
Historical		$	0.15			$	0.58
Pro forma equivalent (unaudited)		$	0.20			$	0.58
Book value per share
Historical		$	21.42			$	21.74
Pro forma equivalent (unaudited)		$	24.72			$	24.38

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:		WHAT AM I BEING ASKED TO VOTE ON AS A HOLDER OF FIRST REPUBLIC COMMON STOCK?
A:		Merrill Lynch and First Republic have entered into a merger agreement pursuant to which Merrill Lynch has agreed to acquire First Republic. You are being asked to vote to approve the plan of merger contained in the merger agreement through which First Republic will merge with and into ML Bank. After the merger, ML Bank will be the surviving entity and a wholly owned subsidiary of Merrill Lynch, and First Republic will no longer be a separate company, but a new division of ML Bank.
		In addition, you are being asked to vote to approve a proposal to adjourn the Special Meeting, if necessary, including to solicit additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the plan of merger.
Q:		WHEN WILL THE FIRST REPUBLIC ANNUAL MEETING BE HELD AND WHAT MATTERS WILL BE CONSIDERED AT THE ANNUAL MEETING?
A:		First Republic normally holds its annual meetings in May of each year. At such annual meetings, matters including the election of directors and ratification of the selection of First Republic’s independent auditors are normally voted upon. Due to the proposed merger, First Republic has decided to postpone its annual meeting until later in 2007, following the Special Meeting to approve the plan of merger. If the merger with Merrill Lynch is completed before First Republic is required to hold its annual meeting, First Republic will not hold an annual meeting in 2007 or thereafter.
Q:		IF THE MERGER IS COMPLETED, WHAT WILL I RECEIVE IN EXCHANGE FOR MY SHARES?
A:		For each share of First Republic common stock you hold immediately prior to completion of the merger, you will receive, at your election but subject to certain proration procedures designed to ensure that the aggregate consideration to be paid by Merrill Lynch will be, as nearly as practicable, 50% cash and 50% common stock, either $55.00 in cash or $55.00 in Merrill Lynch common stock.
		You may make different elections with respect to different shares that you hold (if, for example, you own 100 First Republic shares, you could make a cash election with respect to 50 shares and a stock election with respect to the other 50 shares). If you do not submit a properly completed form of election prior to the election deadline, you will be allocated Merrill Lynch common stock or cash pursuant to the procedures described in the section entitled “The Merger — Consideration; Election Procedures — Non-Election” beginning on page 30. The form of election will give you the option to designate the order of priority for the allocation of cash consideration to particular blocks of your First Republic shares in the event that the proration requirements in the merger agreement result in either Merrill Lynch common stock or cash not being available in the full amount elected.
Q:		WHEN AND WHERE IS THE SPECIAL MEETING?
A:		The First Republic Special Meeting will take place on [ • ], 2007. The time and location of the meeting are specified on the cover page of this proxy statement/prospectus.
Q:		WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A:		Holders of record of First Republic common stock as of the close of business on May 7, 2007, referred to as the record date, are entitled to vote at the Special Meeting. Each stockholder has one vote for each share of First Republic common stock that the stockholder owns on the record date. Holders of First Republic preferred stock and First Republic Depositary Shares are not, as such, entitled to and are not being requested to vote at the Special Meeting.

Q:		WILL I HAVE APPRAISAL OR DISSENTERS’ RIGHTS AS A RESULT OF THE MERGER?
A:		First Republic is organized under the laws of the State of Nevada. Under Nevada law, no holder of shares of First Republic common stock is entitled to appraisal or dissenters’ rights or similar rights to a court valuation of the fair value of their shares in connection with the merger because such shares are listed on the New York Stock Exchange and such holder will be entitled to cash or shares of Merrill Lynch common stock that will be listed on the New York Stock Exchange.
		Each currently outstanding First Republic Depositary Share is listed on the New York Stock Exchange and represents a one-fortieth interest in a share of First Republic preferred stock. As listed securities, the First Republic Depositary Shares are not entitled to appraisal or dissenter’s rights under Nevada law. As a beneficial owner of a whole share or whole shares of the underlying First Republic preferred stock, however, you may assert such rights to the extent of your beneficial ownership of an entire share of First Republic preferred stock (i.e., 40 First Republic Depositary Shares equaling beneficial ownership of one share of First Republic preferred stock). To dissent from the merger and seek the fair value of the relevant shares of First Republic preferred stock, you must follow the procedures established under Nevada law, including delivery of notice of demand for appraisal prior to the Special Meeting and continuing to hold the relevant Depositary Shares (or the related shares of First Republic preferred stock) through completion of the merger.
		These procedures are described in Annex C of this proxy statement/prospectus and are summarized in the section entitled “The Merger — Appraisal or Dissenters’ Rights” beginning on page 59. Failure to follow the applicable procedures will result in the loss of appraisal rights.
Q:		WHAT DO I NEED TO DO NOW?
A:		After you have carefully read this entire document, please vote your shares of First Republic common stock. You may do this either by completing, signing, dating and mailing the enclosed proxy card or by submitting your proxy by telephone or through the Internet, as explained in this proxy statement/prospectus. This will enable your shares to be represented and voted at the First Republic Special Meeting.
Q:		WILL I BE TAXED ON THE CONSIDERATION THAT I RECEIVE IN EXCHANGE FOR MY SHARES OF FIRST REPUBLIC STOCK?
A:		The merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Accordingly, holders of First Republic common stock who receive Merrill Lynch common stock, or Merrill Lynch common stock and cash, in the merger generally will not recognize gain on the receipt of Merrill Lynch common stock and generally will only recognize gain (but not loss) in an amount not to exceed any cash received as part of the merger consideration for U.S. federal income tax purposes as a result of the merger, including any cash received in lieu of fractional share interests. Holders of First Republic common stock who receive only cash in the merger generally will recognize gain or loss equal to the difference between the amount of cash received by a holder and such holder’s tax basis in its shares. For a discussion of the material U.S. federal income tax consequences to holders of First Republic preferred stock (including holders of First Republic Depositary Shares) who either receive Merrill Lynch preferred stock in the merger or who receive cash for First Republic preferred stock as a result of the exercise of appraisal rights, please see the section entitled “The Merger — Material U.S. Federal Income Tax Consequences.” In certain circumstances, gain recognized as a result of the merger, or the amount of cash received in the merger, could be taxable as a dividend rather than as gain from the sale of a capital asset. Neither Merrill Lynch nor First Republic will be required to complete the merger unless it receives a legal opinion to the effect that the merger will be treated as a “reorganization” for United States federal income tax purposes.
		For a more detailed discussion of the United States federal income tax consequences of the merger to U.S. holders of First Republic stock, please see the section entitled “The Merger — Material U.S. Federal Income Tax Consequences” beginning on page 52.

		Tax matters are very complicated and the consequences of the merger to any particular stockholder will depend on that stockholder’s particular facts and circumstances. You are urged to consult your own tax advisors to determine your own tax consequences from the merger.
Q:		HOW DOES FIRST REPUBLIC’S BOARD OF DIRECTORS RECOMMEND HOLDERS OF FIRST REPUBLIC COMMON STOCK VOTE ON THE MERGER?
A:		The First Republic board of directors unanimously recommends that holders of First Republic common stock vote “FOR” the approval of the plan of merger.
Q:		WHY IS MY VOTE IMPORTANT?
A:		Approval of the plan of merger requires the affirmative vote of a majority of the voting power of First Republic stockholders entitled to vote at the First Republic Special Meeting. We urge you to vote, because if a First Republic common stockholder fails to vote or abstains, this will have the same effect as a vote against approval of the plan of merger.
Q:		IF MY COMMON SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER AUTOMATICALLY VOTE MY COMMON SHARES FOR ME?
A:		No.  Without instructions from you, your broker will not be able to vote your common shares. You must instruct your broker to vote your common shares, following the directions your broker provides. Please check the voting form used by your broker to see if it offers telephone or Internet voting.
Q:		WHAT IF I FAIL TO INSTRUCT MY BROKER?
A:		If you fail to instruct your broker to vote common shares held in “street name,” the resulting broker non-vote will have the same effect as a vote against approval of the plan of merger.
Q:		CAN I CHANGE MY VOTE?
A:		Yes. If you have not voted through your broker, you may change your vote at any time before your proxy is voted at the Special Meeting. There are three ways you can change your vote after you have submitted your proxy (whether by mail, phone or through the Internet):

	•	First, you can send a written notice to the Secretary of First Republic at the address listed below, stating that you would like to revoke the proxy that you submitted in connection with the approval of the plan of merger.

	•	Second, you can complete and submit a new proxy card or vote again by telephone or through the Internet. Your latest vote actually received by First Republic before the Special Meeting will be counted, and any earlier votes will be revoked.
	•	Third, you can attend the First Republic Special Meeting and vote in person. Any earlier proxy will thereby be revoked. However, simply attending the meeting without voting will not revoke an earlier proxy.

		If you have instructed a broker to vote your common shares, you must follow the directions you receive from your broker in order to change or revoke your vote.

Q:		SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A:		No. Please do NOT send in your stock certificates at this time. We will provide you at a later date with instructions regarding the surrender of your stock certificates. You should then, in accordance with those instructions, send your First Republic common stock certificates to the exchange agent.
Q:		WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A:		We currently expect to complete the merger in the third quarter of 2007. However, we cannot assure you when or if the merger will be completed. Among other things, we must first obtain the approval of the First Republic stockholders at the Special Meeting and all necessary regulatory approvals.
Q:		WHOM SHOULD I CALL WITH QUESTIONS?
A:		If you are a First Republic stockholder and you have questions about the merger or the First Republic Special Meeting or you need additional copies of this document, or if you have questions about the process for voting or if you need a replacement proxy card, you should contact:

 

This proxy statement/prospectus, including information incorporated by reference into this document, may contain forward-looking statements, including, for example, statements about management expectations, strategic objectives, growth opportunities, business prospects, regulatory proceedings, transaction synergies and other benefits of the merger, and other similar matters. These forward-looking statements are not statements of historical facts and represent only Merrill Lynch’s and/or First Republic’s beliefs regarding future performance, which is inherently uncertain. There are a variety of factors, many of which are beyond Merrill Lynch’s and First Republic’s control, which affect operations, performance, business strategy and results and could cause actual results and experience to differ materially from the expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, the following:

 

 

We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this proxy statement/prospectus, in the case of forward-looking statements contained in this proxy statement/prospectus, or the dates of the documents incorporated by reference into this proxy statement/prospectus, in the case of forward-looking statements made in those incorporated documents.

 

Except to the extent required by applicable law or regulation, Merrill Lynch and First Republic undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events.

 

For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please see the section entitled “Risk Factors” beginning on page 21 and the reports that Merrill Lynch and First Republic have filed with the SEC and the FDIC, respectively. These reports are described in the section entitled “Where You Can Find More Information” beginning on page 93, including the Annual Report on Form 10-K for the year ended December 29, 2006 of Merrill Lynch and for the year ended December 31, 2006 of First Republic.

 

All subsequent written or oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to Merrill Lynch and First Republic or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

 

In addition to the other information included or incorporated by reference into this proxy statement/prospectus, you should carefully read and consider the following factors in deciding how to vote on the plan of merger and in deciding whether to elect to receive cash or shares of Merrill Lynch common stock in the merger. Please also refer to the additional risk factors identified in the periodic reports and other documents of Merrill Lynch and First Republic incorporated by reference into this proxy statement/prospectus and listed in the section entitled “Where You Can Find More Information” beginning on page 93.

 

The market price of Merrill Lynch’s common stock after the merger will be affected by factors different from those currently affecting the shares of First Republic common stock or Merrill Lynch common stock.

 

The businesses of Merrill Lynch and First Republic differ significantly, and, accordingly, the results of operations of the combined company and the market price of Merrill Lynch common stock after the merger will be affected by factors different from those currently affecting the independent results of operations of Merrill Lynch and the market price of Merrill Lynch common stock. Further, Merrill Lynch operates globally across a broad range of asset classes and services which First Republic has not historically operated in. Accordingly, the results of operations of the combined company and the market price of Merrill Lynch common stock may be affected by factors different from those currently affecting the results of operations of First Republic and market price of First Republic common stock. For a discussion of the businesses of Merrill Lynch and First Republic and of the most recent set of risk factors related to the business of Merrill Lynch, please see the documents incorporated by reference into this proxy statement/prospectus and referred to in the section entitled “Where You Can Find More Information” beginning on page 93.

 

First Republic common stockholders may receive a form of consideration different from what they elect.

 

The right of First Republic common stockholders to elect to receive cash or Merrill Lynch common stock in the merger is subject to proration procedures designed to ensure that the aggregate consideration to be paid by Merrill Lynch will be, as nearly as practicable, 50% cash and 50% common stock. As a result, if either the aggregate cash or stock elections exceed the maximum amount available, and you choose a consideration election that exceeds the maximum amount available, you may receive all or a portion of your consideration in a form different from what you elected. Accordingly, if you make a cash election, it is possible that you will receive Merrill Lynch common stock. Conversely, if you elect to receive Merrill Lynch common stock, it is possible that you will receive cash.

 

If you tender shares of First Republic common stock to make an election (or follow the procedures for guaranteed delivery), you will not be able to sell those shares, unless you revoke your election prior to the election deadline.

 

After the Special Meeting, each First Republic common stockholder will receive an election form and other materials relating to the stockholder’s right to elect the form of merger consideration under the merger agreement and will be requested to send to the exchange agent your First Republic stock certificates (or follow the procedures for guaranteed delivery) together with the properly completed election form. If you want to make a cash or stock election, you must deliver your stock certificates (or follow the procedures for guaranteed delivery) and a properly completed and signed form of election to the exchange agent by the deadline. The deadline for doing this will be set forth on the election form. You will not be able to sell any shares of First Republic common stock that you have delivered, unless you revoke your election before the deadline by providing written notice to the exchange agent. If you do not revoke your election, you will not be able to liquidate your investment in First Republic common stock for any reason until you receive cash or Merrill Lynch common stock in the merger. In the time between delivery of your shares and the completion of the merger, the trading price of First Republic or Merrill Lynch common stock may decrease, and you might otherwise want to sell your shares of First Republic to gain access to cash, make other investments, or reduce the potential for a decrease in the value of your investment.

 

The date that you will receive your merger consideration depends on the completion date of the merger, which is uncertain. The completion date of the merger might be later than expected due to unforeseen events, such as delays in obtaining regulatory approvals.

 

The merger agreement limits First Republic’s ability to pursue alternatives to the merger.

 

The merger agreement contains provisions that make it more difficult for First Republic to sell its business to a party other than Merrill Lynch. These provisions include a general prohibition on First Republic soliciting any acquisition proposal or offer for a competing transaction and the requirement that First Republic pay a termination fee of $65 million if the merger agreement is terminated in specified circumstances and thereafter an alternative transaction is entered into or completed. For further information, please see the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 68.

 

Merrill Lynch required First Republic to agree to these provisions as a condition to Merrill Lynch’s willingness to enter into the merger agreement. These provisions, however, might discourage a third party that might have an interest in acquiring all or a significant part of First Republic from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher per share market price than the current proposed merger consideration. Furthermore, the termination fee may result in a potential competing acquiror proposing to pay a lower per share price to acquire First Republic than it might otherwise have proposed to pay.

 

The shares of Merrill Lynch common stock to be received by First Republic stockholders as a result of the merger will have different rights from the shares of First Republic common stock.

 

The rights associated with First Republic common stock are different from the rights associated with Merrill Lynch common stock. Please see the section entitled “Comparison of Stockholder Rights” beginning on page 79 for a discussion of the different rights associated with Merrill Lynch common stock.

 

Combining our two companies may be more difficult, costly or time-consuming than we expect.

 

Although Merrill Lynch has agreed to allow the existing management personnel of First Republic substantial autonomy to make strategic business decisions and generally to operate the business of First Republic and its subsidiaries consistent with past practice as a separate division of ML Bank, such autonomy and decision making is subject to compliance with Merrill Lynch and ML Bank governance policies applicable to subsidiaries of Merrill Lynch and ML Bank and subject to regulatory and compliance requirements applicable to the operations of ML Bank. It is possible that the integration process could result in the loss of key employees or disruption of each company’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect First Republic’s ability to continue to operate consistent with past practice, maintain relationships with clients and employees or achieve the anticipated benefits of the merger. If Merrill Lynch is not able to integrate First Republic’s operations successfully and timely, the expected benefits of the merger may not be realized.

 

Some of the directors and executive officers of First Republic may have interests and arrangements that may have influenced their decisions to support or recommend that you approve the merger.

 

The interests of some of the directors and executive officers of First Republic may be different from those of First Republic stockholders, and some directors and officers of First Republic may be participants in arrangements that are different from, or in addition to, those of First Republic stockholders. These interests are described in more detail in the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 48.

 

If the merger is not consummated by October 31, 2007, either Merrill Lynch or First Republic may choose not to proceed with the merger.

 

Either Merrill Lynch or First Republic may terminate the merger agreement if the merger has not been completed by October 31, 2007, unless the terminating party failed to comply with any provision of the

agreement and thereby caused, or materially contributed to, the failure of the merger to occur by that date. Please see the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 68.

 

Merrill Lynch and First Republic must obtain regulatory approvals to complete the merger, which, if delayed, not granted, or granted with unacceptable conditions, may jeopardize or postpone the completion of the merger, result in additional expenditures of money and resources or reduce the anticipated benefits of the merger.

 

Merrill Lynch and First Republic must obtain certain approvals in a timely manner from governmental agencies, including the OTS and the Nevada Department of Business & Industry, Division of Financial Institutions prior to completion of the merger. If Merrill Lynch and First Republic do not receive these approvals, or do not receive them on terms that satisfy the conditions set forth in the merger agreement, then neither party will be obligated, or in some cases permitted, to complete the merger. The governmental agencies from which Merrill Lynch and First Republic will seek these approvals have broad discretion in administering the governing statutes and regulations. As a condition to approval of the merger, these agencies may impose requirements, limitations or costs that could negatively affect the way the combined companies conduct business. These requirements, limitations or costs could jeopardize or delay the completion of the merger. Neither Merrill Lynch nor First Republic is obligated to complete the merger if a governmental entity imposes a term or condition that would have or be reasonably likely to have a material adverse effect on the financial condition, results of operations, assets or business of Merrill Lynch or its respective subsidiaries. Please see the section entitled “The Merger — Regulatory Matters” beginning on page 56.

 

If the conditions to the merger are not met, the merger may not occur.

 

Specified conditions set forth in the merger agreement must be satisfied or waived to complete the merger. For a more complete discussion of the conditions to the merger, please see the section entitled “The Merger Agreement — Conditions to Completion of the Merger” beginning on page 62. The following conditions, in addition to other customary closing conditions, must be satisfied or waived, if permissible, before Merrill Lynch and First Republic are obligated to complete the merger:

 

 

Merrill Lynch and First Republic may waive one or more of the conditions to the merger without resoliciting stockholder approval for the merger.

 

Each of the conditions to Merrill Lynch’s and First Republic’s obligations to complete the merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of Merrill Lynch and First Republic if the condition is a condition to both Merrill Lynch’s and First Republic’s obligation to complete the merger, or by the party for which such condition is a condition of its obligation to complete the merger. The boards of directors of Merrill Lynch and First Republic may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus and resolicitation of proxies are necessary. However, Merrill Lynch and First Republic generally do not expect any such waiver to be significant enough to require resolicitation of stockholders. In the event that any such waiver is not determined to be significant enough to require resolicitation of stockholders, the companies will have the discretion to complete the merger without seeking further stockholder approval.

 

Merrill Lynch & Co., Inc.
4 World Financial Center
New York, New York 10080
(212) 449-1000

 

Merrill Lynch is one of the world’s leading wealth management, capital markets and advisory companies with offices in 37 countries and territories and total client assets of approximately $1.6 trillion. As an investment bank, Merrill Lynch is a leading global trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide. Merrill Lynch owns approximately half of the economic interest of BlackRock, Inc., one of the world’s largest publicly traded investment management companies, with more than $1 trillion in assets under management.

 

Additional information about Merrill Lynch and its subsidiaries is included in documents incorporated by reference into this document. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 93.

 

First Republic Bank
111 Pine Street, 2nd Floor
San Francisco, California 94111
(415) 392-1400

 

First Republic is a New York Stock Exchange-traded, private bank and wealth management firm. First Republic and its subsidiaries specialize in providing personalized, relationship-based wealth management services, including private banking, private business banking, investment management, trust, brokerage and real estate lending. As of December 31, 2006, First Republic and its subsidiaries had total assets and other assets managed and serviced totaling $34.2 billion. First Republic provides access to its services online and through preferred banking or trust offices in 10 metropolitan areas: San Francisco, Los Angeles, Santa Barbara, Newport Beach, San Diego, Las Vegas, Portland, Seattle, Boston and New York City.

 

First Republic is an FDIC-insured publicly owned commercial bank chartered by the State of Nevada. First Republic and its subsidiaries are subject to the supervision, examination and reporting requirements of the FDIC and the Nevada Department of Business & Industry, Division of Financial Institutions.

 

Additional information about First Republic and its subsidiaries is included in documents incorporated by reference into this document. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 93.

 

Merrill Lynch Bank & Trust Co., FSB
4 World Financial Center
New York, New York 10080
(212) 449-1000

 

ML Bank is part of the Merrill Lynch Global Bank Group, which provides the management platform for Merrill Lynch’s banking products and services. ML Bank is an FDIC-insured federal savings bank and is a retail bank for CRA purposes and offers certificates of deposit, transaction accounts and money market deposit accounts and issues Visa^® debit cards. ML Bank, through its subsidiaries Merrill Lynch Credit Corporation and Financial Freedom Mortgage Corporation, offers residential mortgage financing throughout the United States, enabling clients to purchase and refinance their homes as well as to manage their other personal credit needs. On December 30, 2006, ML Bank acquired the First Franklin mortgage origination franchise and related servicing platform from National City Corporation.

 

This section contains information for First Republic stockholders about the Special Meeting. First Republic has called to allow its common stockholders to consider and approve the plan of merger contained in the merger agreement. First Republic is mailing this proxy statement/prospectus to its stockholders on or about [ • ], 2007. Together with this proxy statement/prospectus, First Republic is sending a notice of the Special Meeting and a form of proxy that First Republic’s board of directors is soliciting for use at the Special Meeting and at any adjournments or postponements of the meeting.

 

 

The First Republic Special Meeting will be held on [ • ], 2007 at [ • ] local time at [ • ].

 

 

At the First Republic Special Meeting, First Republic common stockholders will be asked to:

 

 

 

If you are a First Republic common stockholder, you should complete and return the proxy card accompanying this proxy statement/prospectus to ensure that your vote is counted at the First Republic Special Meeting, regardless of whether you plan to attend the First Republic Special Meeting. If you are a registered common stockholder (that is, you hold stock certificates registered in your own name), you may also vote by telephone or through the Internet by following the instructions described on your proxy card. If your shares are held in nominee or “street name,” you will receive separate voting instructions from your broker or nominee with your proxy materials. Although most brokers and nominees offer telephone and Internet voting, availability and specific processes will depend on their voting arrangements. You can revoke a proxy at any time before the vote is taken at the First Republic Special Meeting by submitting to First Republic’s Secretary written notice of revocation or a properly executed proxy of a later date, or by attending the First Republic Special Meeting and voting in person. Written notices of revocation and other communications about revoking First Republic proxies should be addressed to:

 

First Republic Bank

111 Pine Street, 2nd Floor

San Francisco, California 94111

Attention: Edward J. Dobranski, Secretary

 

If your shares are held in street name, you should follow the instructions of your broker regarding the revocation of proxies.

 

All shares represented by valid proxies that First Republic receives through this solicitation, and that are not revoked, will be voted in accordance with the instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the approval of the plan of merger and “FOR” the proposal to adjourn or postpone the Special Meeting, if necessary, including to solicit additional proxies. First Republic’s board of directors is currently unaware of any other matters that may be presented for action at the First Republic Special Meeting. If other matters properly come before the First Republic Special Meeting, or at any adjournment or postponement of the meeting, First Republic intends that shares represented by properly submitted proxies will be voted, or not voted, by and in accordance with the best judgment of the persons named as proxies on the proxy card.

 

First Republic will bear the entire cost of soliciting proxies from its stockholders. In addition to solicitation of proxies by mail, First Republic will request that banks, brokers and other record holders send

proxies and proxy material to the beneficial owners of First Republic common stock and secure their voting instructions, if necessary. First Republic will reimburse the record holders for their reasonable expenses in taking those actions.

 

First Republic has also made arrangements with Morrow & Co., Inc. to assist in soliciting proxies in connection with approval of the plan of merger and in communicating with stockholders and has agreed to pay it $10,000 plus reasonable expenses for these services. Proxies may also be solicited by directors, officers and regular employees of First Republic in person or by telephone or other means for which such persons will receive no special compensation.

 

First Republic’s board of directors has fixed the close of business on May 7, 2007 as the record date for determining the First Republic stockholders entitled to receive notice of, and in the case of common stockholders, to vote at the First Republic Special Meeting. At that time, [ • ] shares of First Republic common stock were outstanding, held by approximately [ • ] holders of record. As of the record date, directors and executive officers of First Republic and their affiliates had the right to vote [ • ] shares of First Republic common stock, representing approximately [ • ] percent of the shares entitled to vote at the First Republic Special Meeting. First Republic currently expects that its directors and executive officers will vote such shares “FOR” the approval of the plan of merger and “FOR” the proposal to adjourn or postpone the Special Meeting, if necessary, including to solicit additional proxies.

 

The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of First Republic common stock is necessary to constitute a quorum at the Special Meeting. Abstentions and broker non-votes will be counted towards the presence of a quorum.

 

Approval of the plan of merger requires the affirmative vote of a majority of the voting power of First Republic stockholders entitled to vote at the First Republic Special Meeting. Only First Republic common stockholders are entitled to vote at the Special Meeting. Holders of First Republic preferred stock and First Republic Depositary Shares are not, as such, entitled to vote at the Special Meeting. Approval of the proposal relating to the adjournment or postponement of the Special Meeting, if necessary, including to solicit additional proxies, requires the affirmative vote of a majority of the votes cast by First Republic stockholders entitled to vote at the First Republic Special Meeting. You are entitled to one vote for each share of First Republic common stock you held as of the record date.

 

First Republic’s board of directors urges First Republic common stockholders to complete, date and sign the accompanying proxy card and return it promptly in the enclosed postage paid envelope, or to vote by telephone or through the Internet.

 

Abstentions, failures to vote and broker non-votes will have the same effect as a vote against approval of the plan of merger. Abstentions, failures to vote and broker non-votes will have no effect on the vote to approve the proposal relating to adjournment or postponement to be considered at the Special Meeting.

 

If you own shares of First Republic common stock in the First Republic Employee Stock Ownership or the Bank of Walnut Creek Employee Stock Ownership Plan, such shares will be voted solely by the trustee of such plan pursuant to the terms of such plan and the instructions received by the trustee from plan participants. The trustees of such plans will not disclose the confidential voting directions of any individual participant or beneficiary to First Republic. If you own shares of First Republic common stock in either of such plans, you will be receiving a separate letter from the trustee of such plan explaining the voting process with respect to such shares and you will be provided with voting instructions with respect to those shares.

 

Many stockholders of First Republic have the option to submit their proxies or voting instructions electronically by telephone or through the Internet instead of submitting proxies by mail on the enclosed proxy card. Please note that there are separate arrangements for using the telephone and the Internet depending on whether your shares are registered in First Republic’s stock records in your name or in the name of a brokerage firm or bank. You should check your proxy card or the voting instruction form forwarded by your broker, bank or other holder of record to see which options are available.

 

First Republic holders of record may submit proxies:

 

 

To reduce the expenses of delivering duplicate proxy materials to First Republic stockholders, First Republic is relying upon SEC rules that permit us to deliver only one proxy statement/prospectus to multiple stockholders who share an address unless we receive contrary instructions from any stockholder at that address. If you share an address with another stockholder and have received only one proxy statement/prospectus, you may write or call us as specified below to request a separate copy of this document and we will promptly send it to you at no cost to you: Edward J. Dobranski, Secretary, First Republic Bank, 111 Pine Street, 2nd Floor, San Francisco, California 94111, or by telephoning us at 415-392-1400.

 

FIRST REPUBLIC’S BOARD OF DIRECTORS HAS ADOPTED THE PLAN OF MERGER. THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER AND THE MERGER AGREEMENT ARE ADVISABLE AND IN THE BEST INTERESTS OF FIRST REPUBLIC AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT FIRST REPUBLIC COMMON STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE PLAN OF MERGER AND “FOR” ANY PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF NECESSARY, INCLUDING TO SOLICIT ADDITIONAL PROXIES.

 

The following discussion summarizes material aspects of the merger. This discussion is a summary only, may not contain all of the information that is important to you and is qualified in its entirety by reference to the merger agreement and the financial advisor opinion attached as Annex A and Annex B, respectively, to this proxy statement/prospectus and incorporated herein by reference. We encourage you to read carefully the merger agreement and the financial advisor opinion, each in their entirety, in addition to the discussion in this proxy statement/prospectus.

 

Upon completion of the merger, First Republic will merge with and into ML Bank, with ML Bank as the surviving entity. Thereafter, First Republic will continue to operate its business as the First Republic Bank Division, a new division of ML Bank. While First Republic’s common stock will be cancelled, Merrill Lynch’s common stock will continue to be listed on the New York Stock Exchange under the symbol “MER.”

 

In order for the merger to be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, ML Bank must be a direct, wholly owned subsidiary of Merrill Lynch at the time the merger is completed. At present, ML Bank is an indirect, wholly owned subsidiary of Merrill Lynch. In the merger agreement, Merrill Lynch has agreed to cause ML Bank to become a direct, wholly owned subsidiary of Merrill Lynch prior to completion of the merger.

 

For each share of First Republic common stock you hold immediately prior to completion of the merger, you will receive, at your election, either $55.00 in cash or $55.00 in Merrill Lynch common stock, but subject to certain proration procedures designed to ensure that the aggregate consideration to be paid by Merrill Lynch will be, as nearly as practicable, 50% cash and 50% common stock. If you elect to receive Merrill Lynch common stock for your shares of First Republic common stock, the number of shares of Merrill Lynch common stock you will receive for each share of First Republic common stock will be equal to (1) $55.00 divided by (2) the average of the last reported sales prices of Merrill Lynch common stock for the last five trading days prior to the date on which the merger is completed. We sometimes refer to the number of shares of Merrill Lynch common stock derived from this calculation as the “conversion number.” Merrill Lynch will not issue any fractional shares in the merger, but will instead pay a cash amount (without interest) equal to the fraction of a share of Merrill Lynch common stock that holders of First Republic common stock would receive based on the conversion number multiplied by the average of the last reported sale prices of Merrill Lynch common stock for the last five trading days prior to the date on which the merger is completed.

 

You may make different elections with respect to different shares of common stock that you hold (if, for example, you own 100 shares of First Republic common stock, you could make a cash election with respect to 50 shares and a stock election with respect to the other 50 shares). In the event of proration, you may receive a portion of your merger consideration in a form other than that which you elected. The form of election will give you the option to designate the order of priority for the allocation of cash consideration to particular blocks of your First Republic shares in the event that the proration requirements in the merger agreement result in either Merrill Lynch common stock or cash not being available in the full amount elected.

 

Set forth below is a table showing a hypothetical range of prices for shares of Merrill Lynch common stock and the corresponding consideration that a First Republic common stockholder would receive in a stock election and in a cash election in the merger. The table does not reflect the fact that Merrill Lynch will not issue fractional shares in the merger, and will instead pay cash.

 

 

The amounts set forth above are hypothetical and are intended only to demonstrate the calculation of consideration payable under the merger agreement. The actual market prices of Merrill Lynch and First Republic common stock will fluctuate prior to completion of the merger. You should obtain current stock price quotations from a newspaper, over the Internet or by calling your broker.

 

Cash Election

 

The merger agreement provides that each First Republic common stockholder who makes a valid cash election will have the right to receive, in exchange for each share of First Republic common stock, $55.00 in cash, subject to proration and adjustment as described below. We sometimes refer to this cash amount as the “cash consideration” and the shares of First Republic common stock for which valid cash elections are made as “cash election shares.”

 

Stock Election

 

The merger agreement provides that each First Republic common stockholder who makes a valid stock election will have the right to receive, in exchange for each share of First Republic common stock, a fraction of a share of Merrill Lynch common stock equal to (1) $55.00 divided by (2) the average of the last reported sales prices of Merrill Lynch common stock for the last five trading days prior to the date on which the merger is completed, subject to proration and adjustment as described below. We sometimes refer to Merrill Lynch common stock received and cash received in lieu of fractional shares of Merrill Lynch common stock as consideration in the merger as the “stock consideration” and the shares of First Republic common stock for which valid stock elections are made as “stock election shares.”

 

Non-Election

 

First Republic stockholders who make no election to receive cash or shares of Merrill Lynch common stock in the merger, whose elections are not received by the exchange agent by the election deadline, or whose forms of election are improperly completed and/or are not signed will be deemed not to have made an election. Common stockholders not making an election may be paid in cash, Merrill Lynch common stock or a mix of cash and shares of Merrill Lynch common stock depending on, and after giving effect to, the number of valid cash elections and stock elections that have been made by other First Republic common stockholders using the adjustment mechanism described below.

 

Adjustment Generally

 

Your right to elect to receive cash or Merrill Lynch common stock as consideration in the merger is subject to certain proration procedures designed to ensure that the aggregate consideration to be paid by Merrill Lynch will be, as nearly as practicable, 50% cash and 50% common stock. If proration is necessary to ensure this allocation of overall consideration, you may receive a portion of the merger consideration in a form other than that which you elected. The form of election will give you the option to designate the order of priority for the allocation of cash consideration to particular blocks of your First Republic common shares in

the event that the proration requirements in the merger agreement result in either Merrill Lynch common stock or cash not being available in the full amount elected.

 

Adjustment if Cash Election is Oversubscribed

 

Stock may be issued to First Republic common stockholders who make cash elections if cash elections are oversubscribed such that the aggregate cash amount that would otherwise be paid in the merger is greater than 50% of the total consideration payable by Merrill Lynch for shares of First Republic common stock in the merger.

 

If the cash election is oversubscribed, then:

 

 

Example A. Oversubscription of Cash Elections

 

Assuming that:

 

 

then a First Republic common stockholder making a cash election with respect to 1,000 shares of First Republic common stock would receive the cash consideration with respect to 900 shares of First Republic common stock and the stock consideration with respect to the remaining 100 shares of First Republic common stock.

 

Adjustment if the Stock Election is Oversubscribed

 

Cash may be issued to First Republic common stockholders who make stock elections if stock elections are oversubscribed such that the aggregate value of Merrill Lynch common stock that would otherwise be issued in the merger is more than 50% of the total consideration payable by Merrill Lynch for shares of First Republic common stock in the merger.

 

If the stock election is oversubscribed, then:

 

 

Example B. Oversubscription of Stock Elections

 

Assuming that:

 

 

then a First Republic common stockholder making a stock election with respect to 1,000 shares of First Republic common stock would receive the stock consideration with respect to 900 shares of First Republic common stock and the cash consideration with respect to the remaining 100 shares of First Republic common stock.

 

Adjustment if the Cash Election is Sufficiently Subscribed

 

If the aggregate cash amount that would otherwise be paid to First Republic common stockholders in the merger based on valid elections is equal or nearly equal to 50% of the total consideration payable by Merrill Lynch for shares of First Republic common stock in the merger, then:

 

 

Election Procedures

 

The merger agreement provides that a form of election and other appropriate and customary transmittal materials will be mailed 35 days before the anticipated completion date of the merger (or on such other date as Merrill Lynch and First Republic mutually agree) to all First Republic common stockholders of record as of the fifth business day prior to such mailing date. Each form of election will allow the holder to make a cash election, a stock election, a mixed election or no election with respect to some or all of their First Republic shares. The form of election will give you the option to designate the order of priority for the allocation of cash consideration to particular blocks of your First Republic shares in the event that the proration requirements in the merger agreement result in either Merrill Lynch common stock or cash not being available in the full amount elected. Merrill Lynch will also make available forms of election to holders of First Republic common stock who request the form of election prior to the election deadline.

 

Holders of First Republic common stock who wish to elect the type of merger consideration they will receive in the merger should carefully review and follow the instructions set forth in the form of election. First Republic stockholders who hold their shares of common stock in “street name” should follow their broker’s instructions for making an election with respect to their shares. First Republic stockholders who hold their shares of common stock in the First Republic Employee Stock Ownership Plan or the Bank of Walnut Creek Employee Stock Ownership Plan should follow their respective trustee’s instructions for making an election with respect to their shares.

 

To make an election, a holder of First Republic common stock must submit a properly completed form of election so that it is actually received by the exchange agent at or prior to the election deadline in accordance with the instructions on the form of election. The election deadline will be 5:00 p.m., Pacific Time, on the

30th day following the date on which the forms of election are mailed to First Republic common stockholders (or on such other date as Merrill Lynch and First Republic mutually agree), which will be set forth in the election materials. A form of election will be properly completed only if accompanied by certificates representing all shares of First Republic common stock covered by the form of election (or customary affidavits and indemnification regarding the loss or destruction of such certificates or the guaranteed delivery of such certificates), together with duly executed transmittal materials included in the form of election.

 

Generally, an election may be revoked or changed, but only by written notice received by the exchange agent prior to the election deadline. If an election is revoked and unless a subsequent properly executed form of election is actually received by the exchange agent at or prior to the election deadline, the holder who revoked the election will be deemed to have made no election with respect to his or her shares of First Republic common stock, and Merrill Lynch will cause those certificates to be returned to the stockholder who submitted those certificates without charge upon the holder’s written request.

 

First Republic common stockholders will not be entitled to revoke or change their elections following the election deadline. As a result, stockholders who have made elections will be unable to revoke their elections or sell their shares of First Republic common stock during the interval between the election deadline and the date of completion of the merger.

 

Shares of First Republic common stock as to which the holder has not made a valid election prior to the election deadline, to be set forth in the election form, will be treated as though no election has been made. If it is determined that any purported cash election or stock election was not properly made, the purported election will be deemed to be of no force or effect and the holder making the purported election will be deemed not to have made an election for these purposes, unless a proper election is subsequently made on a timely basis.

 

Treatment of First Republic Preferred Stock

 

Upon completion of the merger, (i) each share of First Republic 6.70% Noncumulative Perpetual Preferred Series A Shares issued and outstanding immediately prior to completion of the merger will be exchanged for one share of Merrill Lynch 6.70% Noncumulative Perpetual Preferred Stock, Series 6 and (ii) each share of First Republic 6.25% Noncumulative Perpetual Preferred Series B Shares issued and outstanding immediately prior to completion of the merger will be exchanged for one share of Merrill Lynch 6.25% Noncumulative Perpetual Preferred Stock, Series 7. The terms of the Merrill Lynch 6.70% Noncumulative Perpetual Preferred Stock, Series 6 and the Merrill Lynch 6.25% Noncumulative Perpetual Preferred Stock, Series 7 will be substantially identical to the terms of the corresponding series of First Republic preferred stock. Any shares of First Republic preferred stock as to which preferred stockholders have perfected their dissenters’ rights pursuant to Nevada law will not be exchanged for New Merrill Lynch Preferred Stock.

 

Each outstanding share of First Republic preferred stock is presently represented by First Republic Depositary Shares that are listed on the New York Stock Exchange and represent a one-fortieth interest in a share of First Republic preferred stock. Upon completion of the merger, Merrill Lynch will assume the obligations of First Republic under the relevant Deposit Agreement pursuant to which First Republic preferred stock has been deposited. Merrill Lynch will instruct the Depositary to treat the shares of New Merrill Lynch Preferred Stock received by it in exchange for shares of First Republic preferred stock as newly deposited securities under the applicable Deposit Agreement. In accordance with the terms of the relevant Deposit Agreement, the First Republic Depositary Shares will thereafter represent the shares of the relevant series of New Merrill Lynch Preferred Stock. Such depositary shares will continue to be listed on the New York Stock Exchange upon completion of the merger under a new name and will be traded under a new symbol.

 

Shares of preferred stock issued by First Republic’s subsidiaries will remain issued and outstanding following completion of the merger, and the terms of those preferred shares will generally be unaffected by

the merger. Holders of First Republic preferred stock, First Republic Depositary Shares or preferred stock issued by First Republic’s subsidiaries are not entitled to vote on the merger or at the Special Meeting.

 

THE DEPOSITARY IS THE ONLY HOLDER OF RECORD OF SHARES OF FIRST REPUBLIC PREFERRED STOCK, WHICH ARE REPRESENTED BY DEPOSITARY SHARES. ALL HOLDERS OF FIRST REPUBLIC DEPOSITARY SHARES SHOULD FOLLOW THE INSTRUCTIONS GIVEN TO THEM BY THEIR BROKER.

 

The First Republic board of directors regularly discusses with First Republic’s management the company’s financial performance and prospects, and also considers First Republic’s strategy and future outlook. Issues of strategic planning are regularly addressed as part of these discussions. Between January and March 2006, in connection with certain expressions of interest made by potential financial partners, First Republic’s management and board of directors met with representatives of Morgan Stanley, its financial advisor, and had discussions regarding First Republic’s long-term prospects, including its long-term financial plan, as a stand-alone company, as well as the types of strategic alternatives that might be available to First Republic. These included niche acquisitions to gain capabilities, strategic acquisitions of other financial institutions, stock repurchases and the sale of First Republic to financial partners. During this time, the expressions of interest made by potential financial partners never resulted in a binding offer being made by any such party.

 

As directed by First Republic’s management, Morgan Stanley continued to investigate the various strategic alternatives that might be available to First Republic and, from time to time, had further discussions with First Republic’s senior management team.

 

On October 2, 2006, Mr. Terry Laughlin, Senior Vice President — Head of Strategic Growth Opportunities of Merrill Lynch, contacted Mr. James H. Herbert, II, President of First Republic, to arrange an introductory meeting. The meeting was arranged for October 13, 2006. Until October 2006, there had not been any discussions between First Republic and Merrill Lynch in the prior two years about any possible strategic transaction between the companies.

 

On October 13, 2006, Mr. Laughlin and Mr. H. McIntyre Gardner, Senior Vice President — Head of Global Private Client Americas Region and Global Bank of Merrill Lynch, met with Mr. Herbert to discuss, very generally, the businesses of Merrill Lynch and First Republic. No detailed discussion of any possible strategic transaction took place at this meeting.

 

On November 14, 2006, Mr. Laughlin called Mr. Herbert to suggest a meeting with Mr. E. Stanley O’Neal, Chief Executive Officer of Merrill Lynch. This meeting was subsequently scheduled for December 11, 2006.

 

On December 11, 2006, Mr. Herbert met with Mr. O’Neal. There was a general discussion of Merrill Lynch’s private client services, in particular the operations of its private banking and investment group and how First Republic might interact with this group. Mr. O’Neal suggested that a business combination transaction could be structured to maintain First Republic’s brand identity separately from the Merrill Lynch brand and keep the management team of First Republic in place to continue to run First Republic’s business as it had in the past. Discussions continued to take place between Merrill Lynch and First Republic from December 11, 2006 until early January 2007.

 

In addition, in early October 2006, two other potential strategic partners independently contacted First Republic directly to initiate discussions about a possible strategic transaction. At the same time that First Republic’s senior management was having continued discussions and meetings with Merrill Lynch regarding a possible strategic transaction, during the fourth quarter of 2006 and early January 2007 the senior management team of First Republic was also having discussions and meetings with the other two potential strategic partners.

 

On January 9, 2007, Mr. Robert J. McCann, Vice Chairman and President of the Global Private Client Group of Merrill Lynch, Mr. Gardner, Mr. Laughlin and other members of Merrill Lynch’s private client services management team met with Mr. Herbert, Ms. Auguste-deWilde and another member of First Republic’s management team to discuss each company’s business segments, strategic goals and competitive landscape based on publicly available information. The meeting concluded with a discussion of next steps to be taken with respect to a possible strategic transaction between Merrill Lynch and First Republic.

 

On January 9 and 10, 2007, the same members of First Republic’s senior management team held similar meetings with each of the potential strategic partners. Each of these meetings concluded with a discussion of next steps to be taken with respect to a possible strategic transaction.

 

On January 11, 2007, the First Republic board of directors conducted a special telephonic meeting. Mr. Herbert and a representative of Morgan Stanley, First Republic’s financial advisor, advised the board of directors of the three unsolicited contacts by potential strategic partners and the current status of the discussions with Merrill Lynch and the other two potential strategic partners. Mr. Herbert emphasized his belief that none of these potential strategic partners were aware of the others having contacted First Republic or that First Republic was having discussions with any of them. During this meeting, the First Republic board of directors unanimously authorized First Republic to enter into confidentiality agreements with each of the three potential strategic partners (including Merrill Lynch) to share additional information and to proceed with further, more detailed discussions.

 

In mid-January 2007, each of Merrill Lynch and the other two potential strategic partners entered into a confidentiality agreement with First Republic. Thereafter, First Republic’s senior management provided to each potential strategic partner certain product and additional information and an overview of preliminary financial results for the fourth quarter of 2006. Each potential strategic partner was given an opportunity to ask questions.

 

During the two-week period following the execution of the confidentiality agreements, each party continued to review a possible strategic transaction with First Republic.

 

On January 16-17, 2007, Merrill Lynch’s and First Republic’s senior management teams met again in a series of meetings, including a one-on-one meeting between Mr. McCann and Mr. Herbert, to discuss further details of a possible strategic transaction between the two companies.

 

On the afternoon of January 18, 2007, Mr. McCann and Mr. Gardner met with Mr. Herbert and Ms. Auguste-deWilde and indicated to First Republic that Merrill Lynch would be willing to pay a fixed price of $55.00 per share for all of the issued and outstanding shares of First Republic common stock to be paid in a form acceptable to First Republic, subject to satisfactory completion of due diligence and the negotiation of a mutually acceptable definitive agreement. First Republic expressed to Merrill Lynch that it wanted to accommodate the option of a tax-free exchange for its stockholders. Merrill Lynch proposed that the aggregate consideration to be paid by Merrill Lynch be, as nearly as practicable, 50% cash and 50% common stock and that a First Republic common stockholder have the right to elect to receive for each share of common stock held by such stockholder, either $55.00 in cash or $55.00 in Merrill Lynch common stock.

 

On January 21, 2007, the First Republic board of directors conducted a special telephonic board meeting during which they discussed the possible strategic transactions. Mr. Herbert updated the First Republic board of directors on the discussions to date with Merrill Lynch and the other two potential strategic partners. Mr. Herbert conveyed to the board of directors Merrill Lynch’s proposal of $55.00 per share. Mr. Herbert and representatives of Morgan Stanley also explained to the board of directors that the price of $55.00 per share would be a fixed price, with 50% payable in cash and 50% payable in Merrill Lynch common stock and that a First Republic common stockholder would have the right to elect to receive for each share of common stock held by such stockholder, either $55.00 in cash or $55.00 in Merrill Lynch common stock. Mr. Herbert explained that Merrill Lynch had agreed, should a merger occur, to operate First Republic Bank as a separate division of ML Bank.

 

The board of directors was also informed that Mr. Herbert and Ms. Katherine August-deWilde, Executive Vice President and Chief Operating Officer of First Republic, would each be required to enter into three-year

retention agreements with Merrill Lynch to become effective upon the completion of the proposed strategic transaction. A number of questions were raised by the directors of First Republic with respect to Merrill Lynch and its corporate structure. Mr. Herbert noted that Merrill Lynch’s desire to consummate the proposed strategic transaction was driven by its desire to enter the high net worth banking business through an existing organization run by a management group that is experienced and has a successful track record in that business. As a result, Merrill Lynch’s objective would be to retain First Republic’s management team, employees, locations and clients. Also present at the meeting were representatives of White & Case LLP, First Republic’s outside legal counsel. A representative of White & Case LLP reviewed with First Republic’s board of directors the legal and fiduciary considerations relating to the board of directors’ consideration of a possible merger if discussions proceeded to that point. The First Republic board of directors unanimously authorized Mr. Herbert and his executive management team to continue negotiations with Merrill Lynch and the other two potential strategic partners.

 

Between January 17, 2007 and January 23, 2007, an additional potential financial partner and the other two potential strategic partners, other than Merrill Lynch, discussed potential strategic transactions with First Republic, including general financial terms. In each case, the indicated merger consideration discussed with the three additional potential partners was below the merger consideration Merrill Lynch had discussed with First Republic.

 

During the week of January 22, 2007, Merrill Lynch and its legal advisors conducted their due diligence investigation with respect to First Republic’s business and legal, tax, regulatory and other matters. First Republic, with the assistance of its legal and financial advisors, conducted a simultaneous due diligence investigation with respect to Merrill Lynch’s business and legal, tax, regulatory and other matters.

 

On January 23, 2007, Merrill Lynch’s outside legal counsel, Sullivan & Cromwell LLP, provided a draft merger agreement to White & Case LLP, and the parties and their respective legal counsels negotiated the terms of the merger agreement through the week of January 22, 2007 while due diligence investigations continued. L. Martin Gibbs, a member of the First Republic board of directors, is a partner at the law firm of White & Case LLP.

 

A special telephonic meeting of the First Republic board of directors took place on January 26, 2007 to discuss the progress of the discussions and negotiations between First Republic and Merrill Lynch, as well as to discuss the progress of the discussions with the other potential strategic partners. Representatives of Morgan Stanley discussed with First Republic board of directors the valuation of First Republic on a stand-alone basis and as a combined entity with Merrill Lynch pursuant to the proposed terms of the transaction with Merrill Lynch. At that meeting, Mr. Herbert brought the board of directors up to date on discussions with Merrill Lynch. Mr. Herbert indicated that due diligence was on-going but in its final stages (including First Republic’s due diligence on Merrill Lynch). Representatives of Morgan Stanley led the board of directors through a detailed analysis of the value of the enterprise. A representative of Morgan Stanley explained to the First Republic board of directors Merrill Lynch’s proposed merger consideration of $55.00 per share price (with 50% payable in cash and 50% payable in Merrill Lynch common stock), and compared such terms with First Republic’s discussions with the other potential strategic partners. Also at this meeting, Mr. Herbert and Ms. August-deWilde gave an overview of the key terms of their respective retention agreements being negotiated with Merrill Lynch. A representative of White & Case LLP updated the board of directors on the status of the merger agreement, negotiations with Merrill Lynch, certain legal and financial issues raised by the merger agreement and discussed again with the board of directors their fiduciary duties in consideration of the possible merger with Merrill Lynch. First Republic’s board of directors expressed to management their belief in the long-term strategic merits of the possible merger with Merrill Lynch and encouraged management to continue discussions and negotiations with Merrill Lynch. The meeting was then adjourned and scheduled to reconvene in the afternoon of January 28, 2007 when a more definitive version of the merger agreement would be available and negotiations between the parties would be further along.

 

The Merrill Lynch board of directors conducted a special board meeting on the afternoon of January 26, 2007 and were updated on the proposed transaction by Mr. O’Neal. Mr. O’Neal noted that Mr. McCann and the project team had provided the Merrill Lynch board of directors with an informational briefing on the

proposed transaction and discussed the rationale for the proposed transaction at the regular meeting of the Merrill Lynch board of directors on January 22, 2007. At the special board meeting, Mr. O’Neal, Mr. McCann, Mr. Gardner, Mr. Laughlin and Mr. Eric Heaton, a representative of Merrill Lynch’s investment banking group who advised senior management in evaluating and negotiating a possible transaction with First Republic, reviewed the progress of the discussions with and the due diligence review of First Republic and outlined the basic terms of the proposed transaction. The board of directors and senior management discussed the key financial terms of the transaction and the strategic rationale for the transaction. A representative of Sullivan & Cromwell LLP reviewed the key terms of the proposed merger agreement. Mr. Steven A. Baronoff, Senior Vice President — Mergers and Acquisitions Group, or M&A Group, of Merrill Lynch, reviewed the findings of M&A Group’s Fairness Opinion Committee in determining whether the proposed transaction was fair to Merrill Lynch. After further discussion, the board of directors authorized senior management to complete negotiation of the terms of the transaction and to enter into definitive transaction documentation and related agreements.

 

From January 26, 2007 through January 28, 2007, senior management of First Republic and Merrill Lynch along with their respective financial advisors and legal counsel continued to discuss and negotiate key financial and legal terms of the transaction.

 

On the afternoon of January 28, 2007, the First Republic board of directors held a special telephonic meeting. A representative of White & Case LLP gave a comprehensive overview of the terms of the merger agreement, including key terms relating to the structure, covenants, representations and warranties, conditions, termination rights and termination fee and also discussed regulatory and stockholder approvals required to complete the merger. In addition, a representative of White & Case LLP advised the First Republic board of directors regarding certain legal matters related to the proposed transaction, including the First Republic board of directors’ fiduciary obligations in connection with their consideration of the proposed merger. Following the White & Case LLP discussion, representatives of Morgan Stanley reviewed the financial aspects of the proposed transaction and rendered its oral opinion (which was subsequently confirmed in writing on that same day) that, as of January 28, 2007 and based on and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken described in the opinion, the merger consideration to be received by the holders of First Republic common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders. Following the Morgan Stanley discussion, directors addressed questions to members of First Republic’s management, representatives of White & Case LLP and Morgan Stanley and further discussed the proposed transaction. Following a period of discussion and response to director questions, upon motion duly made and seconded, the First Republic board of directors unanimously adopted the merger agreement and authorized the execution thereof, subject to resolution of the outstanding issues in the merger agreement.

 

Later that day, First Republic, Merrill Lynch and their respective legal counsels resolved the outstanding issues in the merger agreement. Early the next morning, First Republic, Merrill Lynch, and ML Bank executed the merger agreement and First Republic and Merrill Lynch issued a joint press release publicly announcing the transaction.

 

In deciding to adopt the merger agreement and to recommend approval of the merger to First Republic’s stockholders as discussed below, the First Republic board of directors considered a number of factors, including the factors listed below. In view of the number and wide variety of factors considered in connection with its evaluation of the merger, the First Republic board of directors did not attempt to quantify or otherwise assign weights to the information and specific factors it considered in reaching its determination, and individual directors may have given different weights to different information and different factors. The First Republic board of directors viewed its adoption and recommendation as being based on the totality of the information and factors presented to and considered by it. In reaching its decision, the First Republic board of directors consulted with First Republic’s management team. The First Republic board of directors also consulted with Morgan Stanley with respect to the financial aspects of the transaction and with First Republic’s legal advisors with respect to the merger agreement and related issues. First Republic’s board of

directors did not attempt to form any conclusions as to whether any particular line item analysis of Morgan Stanley did or did not by itself support the board of directors’ recommendation.

 

Strategic Alternatives

 

The First Republic board of directors believes that the value to be received by First Republic stockholders in the merger is greater than that available to First Republic remaining as an independent entity currently and for the foreseeable future. At the end of 2004, 2005 and 2006 and prior to discussions with Merrill Lynch, First Republic considered its long-term prospects, including its long-term financial plan, as a stand-alone company as well as various strategic opportunities. These included niche acquisitions to gain capabilities (such as additional capabilities in the banking industry), strategic acquisitions of other financial institutions, stock repurchases and the sale of First Republic to strategic or financial partners. First Republic’s board of directors considered the impact to First Republic and its stockholders of remaining as a stand-alone entity and determined that a sale of First Republic to Merrill Lynch at a significant premium of more than 40% to the then current market price of First Republic’s common stock would be a better alternative.

 

Financial Terms of the Merger

 

The First Republic board of directors believes that the per share merger consideration is fair to the stockholders based upon First Republic’s current financial condition and future prospects, as well as Merrill Lynch’s current financial condition and future prospects and the board of directors’ perception of the future prospects of the combined company. In arriving at this conclusion, the First Republic board of directors, together with First Republic’s senior management and legal and financial advisors, evaluated the strategic alternatives available to First Republic. The First Republic board of directors also took into account the expectation that the merger should result in economies of scale and efficiencies for the combined company as discussed below. In addition, the First Republic board of directors recognized that the merger consideration represents a significant premium over the historical average trading price of First Republic common stock during recent periods. In this regard, the First Republic board of directors considered the information presented by, and the opinion of, Morgan Stanley, First Republic’s financial advisor. Please see the section entitled “The Merger — Opinion of First Republic’s Financial Advisor” beginning on page 38.

 

The First Republic board of directors also considered the form of the merger consideration to be received in the merger by the holders of First Republic common stock (the right to elect to receive the per share merger consideration either in cash or Merrill Lynch common stock, subject to proration and adjustment) and the fact that under the fixed price transaction the values of the merger consideration would not rise with increases, or fall with decreases, in the market price of First Republic common stock or Merrill Lynch common stock. The First Republic board of directors considered the certainty of the value of the cash component of the merger consideration, as well as the ability of holders of First Republic common stock to become holders of Merrill Lynch common stock and participate in the future prospects of the combined businesses of First Republic and Merrill Lynch.

 

Preservation of the First Republic Identity and Culture

 

The First Republic board of directors considered the post merger organizational structure of First Republic. Under the merger agreement, First Republic would continue to operate its business separately as the First Republic Bank Division, a new division of ML Bank, with virtually no disruption to the current First Republic clients, no branch closings and no deposit divestitures. The existing management team and key client managers of First Republic would continue as part of the First Republic division of ML Bank, with substantial autonomy to make strategic decisions and generally operate the business of First Republic and its subsidiaries consistent with past practices. Also, members of the First Republic board of directors immediately prior to the merger would have the opportunity to serve as members of a non-governance advisory board of the First Republic Bank Division for at least one year. The function of the advisory board will be to advise the management of the First Republic Bank Division with respect to employee matters and strategic business decisions and to assist with the continuity of First Republic client relationships.

 

The Banking Industry

 

The First Republic board of directors considered the current environment of the banking industry, including the regulatory uncertainty related to the banking industry generally, and the current national and local market conditions, including the trend toward consolidation in the financial services industry in order to obtain the advantage of scale in developing and delivering services in a cost-effective manner, and the likely impact of these factors on First Republic’s potential growth, development, productivity, profitability and strategic options.

 

Merrill Lynch’s Financial Condition, Prospects and Industry Reputation

 

The First Republic board of directors considered (i) the financial condition and prospects of Merrill Lynch, (ii) the results of First Republic’s due diligence review of Merrill Lynch, (iii) Merrill Lynch’s access to capital, (iv) Merrill Lynch’s interest in increasing the quality and number of financial products and services offered to clients and (v) the financial resources that Merrill Lynch could offer First Republic, including an improved credit rating and increased liquidity, which financial resources could support an accelerated growth of First Republic’s business. The First Republic board of directors also took into consideration Merrill Lynch’s worldwide reputation in the financial services industry and the breadth of Merrill Lynch’s operations and resources.

 

Expected Synergies

 

The First Republic board of directors considered the complementary strengths of the businesses of First Republic and Merrill Lynch. First Republic management believes the merger will enable the combined businesses to (i) obtain greater market penetration, (ii) deliver a broad range of asset management products to existing First Republic clients, (iii) provide First Republic banking products to Merrill Lynch’s client base, (iv) achieve stronger financial performance as a combined business and (v) enhance stockholder value.

 

Treatment of First Republic Employees

 

The First Republic board of directors considered the treatment of First Republic employees contemplated by the merger agreement, including the proposed conversion of options to acquire First Republic common stock into options to acquire Merrill Lynch common stock, the amendment to First Republic’s deferred equity plan, the continuation of First Republic employee benefit plans through December 31, 2007 and the provision of employee benefit plans, programs and arrangements that are substantially similar to the covered employees of First Republic as of January 1, 2008 and Merrill Lynch’s obligation to provide all covered employees of First Republic with service credit for purposes of eligibility, participation, vesting and levels of benefit.

 

Certain Terms of the Merger Agreement

 

The First Republic board of directors considered the terms of the merger agreement, including the nature and scope of the closing conditions and the potential for incurring a termination fee in the event the merger agreement is terminated under certain circumstances, and the fact that the termination fee and other provisions of the merger agreement might discourage third parties from seeking to acquire First Republic and otherwise increase the cost of such an acquisition, but not preclude the First Republic board of directors from evaluating a proposal for an alternative transaction involving First Republic. The First Republic board of directors took into account that the terms of the termination fee were the subject of negotiations between the parties and that the fee would generally be payable only in limited circumstances. The First Republic board of directors also took into account that, as a percentage of the merger consideration, the termination fee was within the range of termination fees provided for in recent comparable acquisition transactions at the time the merger agreement was executed.

 

Tax-Free Transaction to the Extent Merger Consideration Received is Merrill Lynch Common Stock

 

With respect to the merger consideration to be received in the form of Merrill Lynch common stock, the First Republic board of directors considered the fact that the merger is intended to qualify as a transaction of a type that is generally tax-free to the holders of First Republic common stock for U.S. federal income tax purposes.

 

Opinion of First Republic’s Financial Advisor

 

The First Republic board of directors considered the opinion of Morgan Stanley, dated January 28, 2007, to the effect that, as of the date of the opinion and based on and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken described in the written opinion, the merger consideration to be received by the holders of First Republic common stock under the merger agreement was fair, from a financial point of view, to such holders. Morgan Stanley’s opinion is further described in the section entitled “The Merger — Opinion of First Republic’s Financial Advisor” beginning on page 41.

 

Closing and Integration Risks

 

The First Republic board of directors considered the risks and costs that the merger might not be completed, the potential impact of the restrictions under the merger agreement on First Republic’s ability to take certain actions during the period prior to the closing of the merger, the potential for diversion of management and employee attention and for increased employee attrition during that period and the potential effect of these factors on First Republic’s business and its relationships with clients. The First Republic board of directors also took into account the likelihood that the merger would be approved by the appropriate banking and regulatory authorities and the stockholders of First Republic in a timely manner and without unacceptable conditions.

 

The First Republic board of directors weighed the foregoing advantages and opportunities against the challenges inherent in the combination of two significant business enterprises operating in a highly-regulated industry. The First Republic board of directors realizes that there can be no assurance about future results, including results expected or considered in the factors listed above, such as assumptions regarding long-term value, competitive and financial strength, potential revenue enhancements, synergies and anticipated cost savings. However, the First Republic board of directors concluded that the potential positive factors outweighed the potential risks of completing the merger. This explanation of the First Republic board of directors’ reasons for the merger and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 18. The First Republic board of directors also considered the fact that some members of the First Republic board of directors and of First Republic’s management may have interests in the merger that are different from those of First Republic stockholders generally. Please see the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 48.

 

At a meeting held on January 28, 2007, after due consideration and consultation with its financial and legal advisors, the First Republic board of directors unanimously determined that the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of First Republic and its stockholders. The First Republic directors present at the meeting unanimously adopted the merger agreement and unanimously recommended that First Republic common stockholders vote to approve the merger agreement. Accordingly, the First Republic board of directors unanimously recommends that the First Republic common stockholders vote “FOR” the approval of the plan of merger contained in the merger agreement at the First Republic stockholder meeting.

 

Merrill Lynch determined to pursue the merger because it believes the merger can enhance the growth of its private client organization by leveraging First Republic’s business model and strategy. Merrill Lynch

believes that First Republic will enable ML Bank to accelerate its strategic objective of growing its high net worth client business. Merrill Lynch further intends to provide First Republic with the resources and support necessary for its success in key markets across the country and to benefit from its deep banking expertise. While First Republic will operate as a separate division with its own brand identity and strategic goals, Merrill Lynch expects its entire private client organization to benefit from First Republic’s outstanding history, excellent credit and lending capabilities and experienced management team. Merrill Lynch also concluded that First Republic’s strong culture of client focus and service sets the standard for excellence in the private banking industry and is consistent with Merrill Lynch’s mission and principles.

 

Pursuant to the terms of an engagement letter dated February 13, 2006, Morgan Stanley was formally engaged to provide financial advisory services to First Republic. First Republic selected Morgan Stanley to act as its financial advisor in connection with strategic alternatives based on Morgan Stanley’s qualifications, expertise and reputation, as well as its knowledge of the business and affairs of First Republic, as well as to render its opinion with respect to the fairness, from a financial point of view, to holders of First Republic’s common stock of the consideration to be offered to such stockholders in the merger.

 

On January 28, 2007, Morgan Stanley delivered its oral opinion and subsequently confirmed in writing on the same date to the First Republic board of directors, that based on and subject to the factors, limitations and assumptions set forth in the opinion, the merger consideration to be received by the holders of First Republic common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of Morgan Stanley’s written opinion, dated January 28, 2007, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Morgan Stanley in rendering its opinion, is attached as Annex B to this proxy statement/prospectus. Holders of First Republic’s common stock are urged to, and should, read that opinion carefully and in its entirety in connection with their consideration of the merger. Morgan Stanley’s opinion, directed to the First Republic board of directors, addresses only the fairness from a financial point of view of the merger consideration to be received pursuant to the merger agreement by the holders of First Republic common stock, and does not address any other aspect of the merger or constitute a recommendation to any First Republic stockholder as to how to vote or take any other action with respect to the merger. This summary is qualified in its entirety by reference to the full text of the opinion.

 

In arriving at its opinion, Morgan Stanley, among other things:

 

 

 

Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information made available to Morgan Stanley by First Republic and Merrill Lynch for the purposes of its opinion. With respect to the financial forecasts, profit plans and information regarding First Republic, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best available estimates and judgments of the future financial performance of First Republic. Morgan Stanley assumed that the merger will be consummated in accordance with the terms of the merger agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will be treated as a tax-free reorganization, pursuant to the Internal Revenue Code. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities (including any hedge or derivative position) of First Republic and Merrill Lynch, nor was Morgan Stanley furnished with any such appraisals, and Morgan Stanley did not make any independent examination of the loan loss reserves or examine any individual loan credit files of First Republic or Merrill Lynch. In addition, Morgan Stanley assumed that in connection with the receipt of all necessary government, regulatory or other consents and approvals for the merger, no restrictions would be imposed that would have any adverse effect on First Republic or Merrill Lynch or on the benefits expected to be derived from the merger. Morgan Stanley relied upon, without independent verification, the assessment by the managements of Merrill Lynch and First Republic, respectively, of: (i) the strategic, financial and other benefits expected to result from the merger; (ii) the timing and risks associated with the integration of First Republic and Merrill Lynch; (iii) their ability to retain key employees of First Republic and (iv) the validity of, and risks associated with, First Republic and Merrill Lynch’s existing and future technologies, intellectual property, products, services and business models. Morgan Stanley is not a legal, tax or regulatory advisor and relied upon, without independent verification, the assessment of First Republic and Merrill Lynch and their legal, tax and regulatory advisors with respect to such matters. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Events occurring after the date of Morgan Stanley’s opinion may affect such opinion and the assumptions used in preparing it, and Morgan Stanley does not assume any obligation to update, revise or reaffirm its opinion. In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition, business combination or other extraordinary transaction, involving First Republic.

 

The following is a brief summary of the material financial and comparative analyses performed by Morgan Stanley in connection with preparing its oral opinion and its written opinion letter, dated January 28, 2007. Some of these summaries of financial analyses include information presented in tabular format. In order to understand fully the financial analysis used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

Description of Valuation Analysis of First Republic

 

Comparable Company Analysis.  As part of its analysis, Morgan Stanley compared certain financial information of First Republic with companies that share certain characteristics with First Republic. As part of the comparable company analysis, Morgan Stanley examined market multiples for each company including:

 

 

The estimated 2007 and 2008 earnings per share information was obtained from the Institutional Brokers Estimate System, or I/B/E/S, and the remaining information was obtained from (or in certain cases estimated based on) publicly available information, including information obtained from the online database of SNL Financial, a recognized data service that collects, standardizes and disseminates relevant corporate, financial, market and mergers and acquisition data for companies in the industries it covers, for the period ended September 30, 2006 or the most recent quarter available. Financial information for First Republic was based on information for the period ended December 31, 2006 obtained from the management of First Republic. The share price data used for this analysis was the closing price on January 24, 2007 for the companies included in this analysis.

 

Morgan Stanley selected the comparable companies below because their businesses and operating profiles are reasonably similar to that of First Republic. In choosing comparable companies to include in its analysis, Morgan Stanley selected two peer groups: California commercial banks, or the CA Bank Peer Group, and trust banks, or the Trust & Private Bank Peer Group.

 

The CA Bank Peer Group included:

 

 

The Trust & Private Bank Peer Group included:

 

 

The following table summarizes the results from the comparable company multiple analysis:

 

 

The implied range of values for First Republic common stock, derived from the analysis of the market price to 2007 estimated earnings per share for the CA Bank Peer Group and the Trust & Private Bank Peer Group, ranged from approximately $34 to $41 per share. The implied range of values for First Republic common stock, derived from the analysis of the market price to book value per share for the CA Bank Peer Group and the Trust & Private Bank Peer Group, ranged from approximately $39 to $48 per share. Morgan Stanley noted that the closing price of First Republic common stock as of January 24, 2007, was $39.08 and the 52-week trading range for the period ending on January 24, 2007 was $35 to $46 per share.

 

Additionally, as part of the comparable company analysis, Morgan Stanley examined certain operating performance metrics for each company in the CA Bank Peer Group and the Trust & Private Peer Group, including:

 

 

Financial information for the comparable companies was based on that for the quarter ended September 30, 2006 or the most recent quarter available. Financial information for First Republic was based on information for the quarter ended September 30, 2006, except for the tangible common equity ratio which was based on information as of December 31, 2006 as obtained from the management of First Republic.

 

The following table summarizes the results from the comparable company operating metrics analysis:

 

 

 

 

Dividend Discount Analysis.  Morgan Stanley performed a dividend discount analysis to determine a range of present values of First Republic common stock, assuming First Republic continued to operate as a stand-alone entity. The range was determined by adding:

 

 

Morgan Stanley made the following assumptions in performing its analysis:

 

 

Based on the above assumptions, the fully diluted stand-alone value of First Republic common stock ranged from approximately $34 to $38 per share. Morgan Stanley also performed the above analysis based on First Republic’s management estimates for earnings per share and asset growth and applied the same

assumptions as above. Based on management’s estimates for earnings per share and asset growth, the fully diluted stand-alone value of First Republic common stock ranged from approximately $52 to $59 per share.

 

Transaction Pricing Multiples.  Morgan Stanley noted that the merger consideration provided for in the merger agreement had an implied transaction value to First Republic stockholders of $55.00 per share of First Republic common stock. Morgan Stanley calculated the implied transaction value as a premium to First Republic’s closing price per share of common stock on January 24, 2007.

 

Morgan Stanley also calculated the implied transaction value as a multiple of First Republic’s book value and tangible book value at December 31, 2006 and as a multiple of First Republic’s estimated earnings for 2007 (based on consensus I/B/E/S earnings estimates for First Republic as of January 24, 2006).

 

Precedent Transaction Analysis.  Morgan Stanley compared the foregoing calculations to similar calculations for selected California bank acquisitions announced since January 1, 2000 that were valued between $250 million and $5 billion, or the Precedent Transactions.

 

 

Morgan Stanley also compared the foregoing calculations to similar calculations implied in Bank of America’s acquisition of U.S. Trust from Charles Schwab.

 

For the selected merger transactions listed above, Morgan Stanley used publicly available financial information, including information obtained from the online database of SNL Financial. Morgan Stanley used this financial information to determine the following multiples for each of the selected Precedent Transactions: