The Merrill Lynch Diet: Starving Shareholders

Umm, I thought we were supposed to believe that Merrill Lynch’s (MER) selling a part of its Bloomberg stake and by taking $40 billion of writedowns this year alone, investors were (almost?) out of the woods.

Guess again, news came overnight that Merrill will be selling more than $8 in new stock (read, diluting existing shareholders) at preferential terms to the Singaporean buyers of the last slug of stuck Merrill stuffed everyone with.

So, as Roger Ehrenberg asks, “…after all this, Is there more to come?”

Let’s get this straight:

CDO book:
Bloomberg reports that Merrill is selling its $30+ billion bond portfolio for 1/5 of face value.  I guess that’s better than 0.

New stock offering:
A lesson in dollar-cost averaging for Singapore’s Termasek.  Merrill is paying Temasek $2.5 billion to offset losses in Temasek’s previous investment in Merrill and to encourage the fund into putting $3.4 billion more into MER stock.

Bloomberg:
According to CEO Thain, Merrill is selling “a controlling stake [in Bloomberg], so we’ll sell more than 51%, but the exact percentage hasn’t been totally determined yet.”

What does that mean?  How much more than 51%?  Isn’t selling off that asset better than massively diluting shareholders after a year that has seen MER stock drop over 61%  Isn’t Bloomberg not even close to being core to what Merrill does anyway?

BlackRock:
Also, why are we holding on to this non-core asset?  Again, according to Thain, “BlackRock as we’ve always talked about is strategic to us. We in fact with the discussions with BlackRock have broadened and lengthened our distribution agreement with them and we continue to believe that that is a very good and important partnership for us and is working well with us.”  I guess what Merrill is saying is that it certainly helps to have a financial relationship with a buy-side firm to help with deal placement and uptake.  Not particulary inspiring and again, they’re smooshing the small investors.

The Bloomberg piece quoted above ends with a great quotation:

“Why these assets are written down when you’re selling them and weren’t written down in your earnings is a question,” said Ralph Cole, a senior vice president in research at Ferguson Wellman Capital Management Inc. in Portland, Oregon, which oversees $2.7 billion and doesn’t own Merrill shares. “This kind of announcement is surprising and a little disheartening.”

I may sound angry, but come on, guys.  I don’t even own the stock but this is the fourth share sale this year and all along, management has said that it has sufficient capital.  Not a great way to treat existing shareholders and certainly not enough to engender enough trust to lure new investors on the sidelines.

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