Today Merrill Lynch (MER) announced they would be selling stock in a private placement to two big investors, Singapore based investment firm Temasek Holdings and famed fund managers Davis Selected Advisors. Davis manages – among others - $50 billion in assets Davis NY Venture Fund (NYVTX) and is one of the most famous mutual fund companies in the business. In the private stock offering, Temasek will get up to $5 billion in Merrill stock, Davis up to $1.2 billion.
Merrill Lynch (NYSE: MER) today announced it has enhanced its capital position by reaching agreements to raise up to $6.2 billion of newly issued common stock in a private placement with Temasek Holdings and Davis Selected Advisors. Merrill Lynch expects these transactions to close by mid-January 2008.
'One of my first priorities at Merrill Lynch was to strengthen the firm’s balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital,' said John A. Thain, chairman and CEO of Merrill Lynch. 'The benefits of these transactions are not limited to strengthening our financial position…'"
The real benefit is the investment bank needs to raise capital to offset mega-billions in losses related to overly enthusiastic wheeling and dealing in the U.S. mortgage market.
What is notable to investors in funds managed by Davis is that the Merrill stock will likely be acquired at a discount to the current market price of Merrill Lynch stock ($48 as opposed to the $58 or so this morning.
Davis doesn’t currently own Merrill Lynch stock in Davis NY Venture, but does own it in Clipper (CFIMX), which Davis now manages after some turmoil at Clipper. Davis NY Venture has done well this year considering their large stakes in financials including banks like JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Wachovia (WB), hard hit in 2007 – and is only slightly underperforming the S&P 500 (5.3% YTD through last Friday as opposed to 6.5% for index).
We don’t know for sure, but based on the Temasek deal Davis probably has the option to buy Merrill stock at $48 until January 31st, 2008, or if they wait, the option to buy it at 90% of the then current market price after January 31st. March 28th, 2008 is the drop dead date to get in at a discount.
As part of the arrangement, Merrill can’t sell more stock in themselves at a price lower than $48 without reimbursing the buyers and Davis can’t sell or otherwise hedge their big Merrill stake for one year.
The fact that Merrill is raising money by selling stock at half the price of earlier this year, watering down other shareholders in the process, speaks to the troubles facing those involved in mortgage lending in recent years.
We’re dying to see how this stock gets allocated to the various Davis funds, separate and institutional accounts because in theory its worth much more than they paid – in fact the option to buy Merrill stock at $48 is worth at least $250 million to Davis right now – essentially free money for locking up for a year and committing to so much stock.
Today Merrill Lynch (MER) announced they would be selling stock in a private placement to two big investors, Singapore based investment firm Temasek Holdings and famed fund managers Davis Selected Advisors. Davis manages – among others - $50 billion in assets Davis NY Venture Fund (NYVTX) and is one of the most famous mutual fund companies in the business. In the private stock offering, Temasek will get up to $5 billion in Merrill stock, Davis up to $1.2 billion.
Merrill Lynch (NYSE: MER) today announced it has enhanced its capital position by reaching agreements to raise up to $6.2 billion of newly issued common stock in a private placement with Temasek Holdings and Davis Selected Advisors. Merrill Lynch expects these transactions to close by mid-January 2008.
'One of my first priorities at Merrill Lynch was to strengthen the firm’s balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital,' said John A. Thain, chairman and CEO of Merrill Lynch. 'The benefits of these transactions are not limited to strengthening our financial position…'"
The real benefit is the investment bank needs to raise capital to offset mega-billions in losses related to overly enthusiastic wheeling and dealing in the U.S. mortgage market.
What is notable to investors in funds managed by Davis is that the Merrill stock will likely be acquired at a discount to the current market price of Merrill Lynch stock ($48 as opposed to the $58 or so this morning.
Davis doesn’t currently own Merrill Lynch stock in Davis NY Venture, but does own it in Clipper (CFIMX), which Davis now manages after some turmoil at Clipper. Davis NY Venture has done well this year considering their large stakes in financials including banks like JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Wachovia (WB), hard hit in 2007 – and is only slightly underperforming the S&P 500 (5.3% YTD through last Friday as opposed to 6.5% for index).
We don’t know for sure, but based on the Temasek deal Davis probably has the option to buy Merrill stock at $48 until January 31st, 2008, or if they wait, the option to buy it at 90% of the then current market price after January 31st. March 28th, 2008 is the drop dead date to get in at a discount.
As part of the arrangement, Merrill can’t sell more stock in themselves at a price lower than $48 without reimbursing the buyers and Davis can’t sell or otherwise hedge their big Merrill stake for one year.
The fact that Merrill is raising money by selling stock at half the price of earlier this year, watering down other shareholders in the process, speaks to the troubles facing those involved in mortgage lending in recent years.
We’re dying to see how this stock gets allocated to the various Davis funds, separate and institutional accounts because in theory its worth much more than they paid – in fact the option to buy Merrill stock at $48 is worth at least $250 million to Davis right now – essentially free money for locking up for a year and committing to so much stock.
Link to press release (PDF)