Bny and Mellen

The present value of the cost saving synergy is $5.02 billion at December 31, 2006 and $4.98 billion at December 1, 2006 (See appendix 1). We used the estimated cost savings and integration cost provided by the management of the two banks to derive the value. Terminal net cost savings synergies after 2010 was then assumed to remain constant going forward with zero terminal growth rate. Annual net cost savings and terminal value were discounted by the estimated weighted average cost of capital after (WACC) the merger. We estimated the cost of debt to be 5.09% using debt beta of 0.1. To find the cost of equity of the merged firm, we first unlevered the beta of BNY and Mellon, and re-levered the weighted beta with the new capital structure. The unlevered beta of the merged firm is a weighted average of the unlevered beta of BNY and Mellon using the market value of equity as of September 30, 2006. For capital structure of the merged firm, we assumed the total amount of debt as the sum of long-term and short-term debt, excluding other liabilities and deposits as of December 2005. Deposits were excluded because it doesn't provide tax benefits. We also assumed market value of equity for both firms remain the same after merger.

We are confident about our synergy estimates. After the merge, the two banks will effectively cut the cost by sharing infrastructure, human resources and client base. One key assumption we added to the calculation of cost savings synergies is assuming a zero growth rate after 2010, which provides us with a conservative estimate. In addition, the projected annual cost savings and integration cost was provided by business managers with detailed bottom up assumptions, which provided us with confidence because they had the most information about the business and operations. The cost savings assumptions were also challenged before published.

Assuming the merged companies combined their existing debt, the synergy cash flow will allow bank to increase its debt due to the tax savings benefit which lowered the cost of debt. Even as the amount of debt increased to about 100% of capital structure, value of cost savings cash flow remains positive.