Sunday, June 29, 2008

CNBC: Merrill Lynch (MER) May Unload Blackrock (BLK) Stake to Raise Capital

Blackrock (BLK) broke down badly this week, with closes below its 200 day moving average for the first time since the worst of the March 08 selloff. I thought it was simply getting caught up in the "all things financial are evil" thinking, but with the huge volume spike Friday it appears the culprit is the fact Merrill Lynch (MER) is so desperate for cash it could be forced to sell off its Blackrock stake for capital. Keep in mind Merrill Lynch has been denying for months it needs anymore capital. (thanks to a reader for alerting me to this story)

Frankly this is going to create (is creating) one heck of a buying opportunity in a great franchise; and to boot Blackrock has first dibs at buying the portion Merrill will choose (if they do) to sell off. This is not something that signals a change in operations or opportunity for Blackrock, simply a unique exogenous event.
  • With his options limited, and time running out, Merrill Lynch CEO John Thain is now seriously considering selling all or part of the firm's 49 percent stake in money-management powerhouse BlackRock as a way to raise new capital, CNBC has learned.
  • People close to both say that Thain’s decision is just weeks away and is prompted, at least in part, by a recent chilly reception he received from another firm that Merrill holds a stake in, Bloomberg LP.
  • Like Bloomberg, Blackrock has first dibs on any sale of Merrill’s stake in the firm. As of now, Blackrock has received no formal offer by Thain to sell, nor is there a board meeting scheduled for a deal, according to people close to the firms.
  • But executives close to both firms say people at Blackrock believe Thain is inching closer to a sale of all or part of its stake, currently valued at around $10.5 billion, if Thain decides he needs to raise added capital. These same executives say the situation is fluid, and Thain’s plan could change.
  • Although no final decision has been made by Thain, he has told senior executives inside Merrill that if the company needs capital, he will try to sell assets like its Bloomberg and BlackRock stakes first, before selling shares and diluting stockholders even more.
  • Sources close to Merrill say Thain may not sell the entire chunk and even if he does, the two firms may still do business. Blackrock manages Merrill’s asset management business, and that relationship may stay in tact through some sort of partnership.
Long Blackrock in fund; no personal position

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