Reports that Merrill Lynch ( MER) CEO Stanley O'Neal had some not-so-discreet talks with Wachovia's ( WB) Ken Thompson have set off a wave of speculation about the troubled U.S. securities firm.

Most of the chatter has centered around potential successors to O'Neal. The usual suspects include Blackrock's ( BLK) CEO Larry Fink and NYSE-Euronext ( NYX) head John Thain.

But there are other options too. Punk Ziegel analyst Dick Bove believes that should Merrill oust O'Neal, a likelier candidate may be Robert McCann, the head of the firm's global private client business.

Bringing up a star of its brokerage unit to lead the company would lead Merrill back to its roots. Not having been a broker himself, O'Neal has created many enemies since taking the CEO job five years ago and has failed to garner respect internally.

"Merrill has historically always been run by its sales force," Bove writes. "The change in this concept when Mr. O'Neal was put in as CEO may now be viewed as a mistake and the firm given back to the sales force."

That said, Bove speculates that O'Neal has a good chance of keeping his job -- despite numerous reports to the contrary.

The New York Times reported early Friday that O'Neal angered Merrill directors by calling Wachovia's Thompson to broach a possible merger without first consulting Merrill's board. The paper said directors were so angered by the executive's apparent disregard for board authority that they are considering replacing him and even discussed prospective replacements.

Merrill declined to comment to TheStreet.com about the rampant speculation.

The question marks surrounding O'Neal's top spot are borne out of fumblings in esoteric collateralized debt obligations that saw Merrill reporting some $8 billion in writedowns. The missteps have caused some investors to lose faith in O'Neal, which has led to speculation about his ouster.

James Cullen, president of Schafer Cullen Capital Management, which owned 1.2 million Merrill shares as of Sept. 30, told Bloomberg, "You can see from the reaction in the stock that any change of management would be good."

In ordinary times, holding one-on-one discussions with another CEO about a potential deal would hardly draw the ire of the board. In fact, it is part of O'Neal's job description to find ways to improve the franchise. When the discussions become serious, however, is it his responsibility to report back to the board of directors.

The flap over talks with Thompson suggest that enemies O'Neal has made during his ascent to CEO are now coming back to haunt him.

"There is also just as clearly a faction in and out of the company who want him replaced," Bove notes.

Whether or not O'Neal chooses to abdicate, the recent moves make it appear that Merrill may be up for grabs.

Deutsche Bank's Michael Mayo believes the troubled firm could fetch between $100 and $120 a share, or about 2.5 to 3 times the company's book value, according to a research note issued today.

At the high end, such a valuation would place the takeout price at nearly double Merrill's present trading level of $63.38. Shares rose as much as 8% on the rumor that O'Neal may be out.

Still, purchasing Merrill appears a risky proposition. Some believe that the other shoe has yet to drop at the firm, and many analysts are predicting another fourth-quarter writedown in the billions of dollars.

Indeed, given continuing pain in the structured credit markets, another huge writedown is almost a given -- despite Merrill's numerous assurances during its third-quarter earnings call that it is comfortable with its assumptions. Giving credence to that are moves today by Moody's Investors Service ( MCO), which followed up billions of downgrades in once-high-rated asset-back securities by downgrading some $33 billion of CDOs.

That downgrade is unlikely to be a positive for Merrill, or for that matter, O'Neal.

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