Sun, Jul 06, 2008 page11

• Merrill Lynch in talks to sell 20% Bloomberg stake

  SHEDDING LIGHT Merril, Bloomberg’s first customer, may sell its stake in a bid to raise capital. The sale would give an official value to the privately held Bloomberg

  • NY TIMES NEWS SERVICE
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  Merrill Lynch is in negotiations to sell its 20 percent stake in Bloomberg LP, the financial data and news company founded by Michael Bloomberg, as the firm seeks to raise still more capital, people involved in the talks said on Friday.

  The discussions remained in the early stages and the talks could fall apart, these people warned.

  No agreement has been reached over the valuation of Merrill’s stake, which it acquired in the mid-1980s as one of Bloomberg’s original customers. Under the terms of its shareholder agreement, Bloomberg has the right of first refusal to buy the stake, these people said.

  A sale of Merrill’s stake would also give an official value to Bloomberg, which has jealously guarded information about its profitability, and offer clues to the wealth of the man who founded the company and who remains its principal owner.

  Bloomberg is a fixture on listings of the wealthiest people in the world, but much of his wealth is tied to his 72 percent stake in the company.

  Analysts have speculated that Bloomberg, which is privately held, could be worth US$20 billion or more. News reports have estimated the company’s annual operating profit at about US$1.5 billion.

  TWIST

  In a twist, Merrill may help Bloomberg finance a buyback of the stake, the people said. Merrill Lynch has been considering a sale of Bloomberg to help it shore up its balance sheet, which has been ravaged by its bad bets on mortgages.

  Just last week, William Tanona, an analyst at Goldman Sachs, forecast that Merrill would take a US$4.2 billion write-down when it announces its second-quarter results in the middle of this month.

  Merrill, which has already raised US$15 billion since John 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.

  People involved in the talks said they hoped to complete a deal by the time of Merrill’s earnings release.

  FIRST CUSTOMER

  News of the talks, which had been speculated about for several weeks, was first reported on Friday in the New York Post.

  Merrill has been closely linked to Bloomberg LP almost since its founding in 1981, after Michael Bloomberg was fired from Salomon Brothers. Merrill became Bloomberg’s first customer in 1982.

  Because Merrill has a limited pool of buyers for its stake, it will probably have to sell it at a discount to its true valuation, these people said.

  Other would-be buyers, like private equity firms, have been mostly sidelined by a dearth of cheap debt financing, and it is unclear if Bloomberg would waive its right to buy the stake to allow a private equity firm to buy it.

  Merrill’s chief, Thain, valued the stake at US$5 billion to US$6 billion when he spoke at a conference last month.
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