Wall Street Yard Sale
July 4, 2008 – 9:22 pmThe NYT will report in tomorrow’s paper that Merrill is seeking a buyer for its 20% stake in Bloomberg LP, the maker of the ubiquitous financial terminals. According to the Times:
…Merrill, which has already raised $15 billion since John A. Thain took over as chief executive last fall, is finding it difficult to raise additional capital through previously used means, like selling preferred stock to sovereign wealth funds and other institutional investors, and it would prefer to avoid diluting the holdings of existing investors.
You can imagine SWFs are gun-shy since they’ve already lost billions on the first wave of Wall Street capital infusions made last year. I wonder if flush private equity players have been invited to invest recently.
Merrill hopes to get $5-$6 billion for their stake, which would imply a $25-$30 billion valuation for all of Bloomberg. Hizzoner owns a 72% stake, so that valuation would put his net worth between $18 and $22 billion. If the $5 billion raised from a Bloomberg sale isn’t enough, Merrill may raise another $10 billion selling its BlackRock stake.
Citigroup is also planning a fire sale in order to raise capital.
The more assets sold, the more capital will go back onto Wall Street balance sheets, which is good news…..theoretically, anyway. The banks may finance some of these asset sales with their own balance sheets, which the Times article notes Merrill may do to sell the Bloomberg stake back to Bloomberg.
Posted in Wall Street, banking, credit crunch |
3 Responses to “Wall Street Yard Sale”
You mean Merrill Lynch is getting rid of the best little whore house in town. What a shame !
By Marc Authier on Jul 5, 2008
Quoting: “Times article notes Merrill may sell the Bloomberg stake back to Bloomberg.”
Does this sound insane to you? Do you get the feeling that people on Wall $treet lack prescience and common $ense? Or is the world so full of $tewepid $heep, that the wolves on Wall $treet always get away with their perfidy?
By Guy Fox in Key West/Havana, Cuba on Jul 8, 2008
Guy–It’s actually not very strange for a business to buy back a piece of itself. This is actually quite common in American capitalism and makes lots of sense. Say you’re a new business looking for funding and you sell a piece to an investor. After a few years your biz takes off and you decide you want to own all of it. So you buy back the piece you sold.
What IS a bit absurd is that Merrill may finance this deal. Bloomberg would buy back the stake in itself with borrowed money from Merrill. Not sure exactly how the accounting would work, but basically it represents Merrill giving cash to itself. The only REAL cash Merrill will receive is the cash that will come in as Bloomberg actually pays back the debt it incurs to buy back the stake.
This is the crazy thing that’s happening on Wall Street right now. In order to fix their balance sheets, the big banks have to unload some of the more toxic debt securities that they own. In order to get them “off” their balance sheet, they lend money to new buyers to do the deed. I’ve no doubt this is often on a recourse basis, meaning the buyer can give the asset back to the bank if it turns out to suck. It’s almost like a sale-leasback transaction. The ultimate owner of the risk is still the wall street bank, but for cosmetic purposes they’ve executed a deal that makes their books look prettier temporarily.
By RolfeWinkler on Jul 8, 2008