Shareholders of FleetBoston (NYSE:FBF), the 7th-largest financial holding company in the U.S., should be showering thank-you notes on Morgan Stanley (NYSE:MWD). After all, Morgan Stanley's advice prompted Fleet to accept a 41.5% premium in a merger with Bank of America (NYSE:BAC).

The merger will require Bank of America to issue 0.5553 shares for each Fleet share -- or 583 million new shares -- and will give Fleet shareholders 28% of the combined company.

Are Fleet's $196 billion in assets worth $47 billion to Bank of America? Tough call.

Fleet looks like damaged goods if you consider just the last eight quarters, two of which boasted net losses. Most others came in below analyst earnings estimates. And there were some large losses, like the $2.4 billion debt default and currency devaluation in Argentina, not to mention bad loans to Enron and United Airlines, to name a few.

To Fleet's credit, it bolstered its loan-loss reserves to a conservative 2.5% of total loans, while nonperforming loans have fallen off for five consecutive quarters. By financial measures, the bank is solid, with $10 billion in cash, a debt-to-equity ratio of 1.0, a return on equity of 13%, and nine-month net income of $1.9 billion.

Bank of America, by comparison, has $25 billion in cash, a debt-to-equity ratio of 1.2, an impressive 21% return on equity, and nine-month net income of $8.1 billion.

Financially, both companies appear sound. Bank of America carries more debt, but gets better returns. In the end, the acquisition could benefit Bank of America holders if Fleet's returns can be improved.

On the balance, however, the purchase price seems rich, especially on a net income basis.

Something about this merger's whopping premium reminds W.D. Crotty -- an admitted trivia buff -- of the history of Tootsie Roll's Sugar Daddy. It was originally called "Papa sucker." Questions and comments welcome at

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