Merrill stock up on CEO, takeover talk

NEW YORK (CNNMoney.com) -- Merrill Lynch stock jumped Friday amid speculation that Chief Executive Stanley O'Neal may be on his way out and that the brokerage firm could become a takeover target.

Merrill (Charts, Fortune 500) shares finished more than 8 percent higher on the New York Stock Exchange.

The speculation mounted after the Wall Street Journal reported late Friday that the bank's board of directors held an unscheduled meeting to discuss the possibility of O'Neal's departure.

Earlier Friday, the New York Times reported Friday that O'Neal approached Wachovia about a merger without consulting Merrill's board, as the company faced billions of dollars in mortgage losses.

Late last week, O'Neal called Wachovia's (Charts, Fortune 500) CEO to gauge his interest in a merger but breached corporate protocol by not getting approval from Merrill's board first, the paper reported, citing people close to the bank.

According to the newspaper, Wachovia CEO Kennedy Thompson acknowledged the difficulty of a merger but expressed interest in discussions.

That prompted speculation about what Merrill would be valued at if it were sold. Deutsche Bank analyst Mike Mayo wrote in a research note published Friday morning that Merrill could fetch a takeover price anywhere between $100 to $120 a share.

"The news is a reminder that a takeover of Merrill is one of several potential outcomes," Mayo wrote.

It also left Wall Street wondering whether O'Neal's days were numbered after the company took a massive $7.9 billion writedown in the third quarter related to bad mortgage bets earlier this week. The losses were far greater than the $5 billion the company had initially estimated.

When O'Neal took over as chief executive in December 2002, he quickly earned a reputation as an aggressive cost cutter, as he attempted to turn around the Wall Street firm by slashing jobs and shutting down different operations around the globe. He also helped revive the company's stock, which reached an all-time high in January, before losing 35 percent of its value since this summer's market meltdown.

But O'Neal's good standing at the firm has since eroded. When it reported its dismal results earlier this week, he shouldered much the blame afterwards, admitting the company failed to protect itself from its exposure to the subprime mortgage sector.

"O'Neal was the right guy at the right time in terms of cost cutting, but clearly he has not been good at controlling risks," said David Katz, chief investment officer at Matrix Asset Advisors, which owns shares of Merrill and manages about $1.7 billion.

The board of the troubled Wall Street firm has already discussed potential candidates to replace O'Neal, according to the Times, citing people knowledgeable of the board's proceedings.

They include Laurence Fink, chairman and chief executive of BlackRock, an investment firm in which Merrill owns a stake, and New York Stock Exchange (Charts) CEO John Thain, the report said.

Before taking over as chief executive officer, O'Neal had enjoyed a fairly meteoric rise within the ranks at Merrill Lynch.

Joining the firm in 1986 as a vice president of investment banking, O'Neal went on to jointly oversee that division and the company's financial services group before briefly serving as Merrill's chief financial and chief operating officer.

Including salary and annual bonuses, O'Neal took home a total of $46 million in compensation in 2006.