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If investors are to believe John Thain’s pledge that Merrill Lynch will not need to raise any more equity, then asset sales must be in the offing. Merrill is set to report another big swathe of writedowns next Thursday as it presents second-quarter results. The bank’s 20 per cent stake in Bloomberg is rumoured to be on the block. How much might it fetch?
The privately held financial data provider is notoriously opaque, so valuations are finger-in-the-air stuff. The only hard reference point is that Merrill sold a third of its interest – equivalent to a 10th of the equity – to Bloomberg in 1996 for $169m. It is also helpful to know that rival ThomsonReuters has a current enterprise value of $34bn, with its markets business – albeit not exactly comparable – accounting for about half of operating profits.
ThomsonReuters has a similar market share to Bloomberg but its margins are reckoned to be at least a fifth lower. Therefore, Bloomberg could conceivably be worth up to $25bn, putting Merrill’s share at $5bn. As a cross-check, that would imply an annual increase in the value of the stake of about 25 per cent over
12 years. That is not ridiculous,
given the boom in financial services in the course of the past decade.
The universe of potential buyers, meanwhile, is limited to Bloomberg, which has right of first refusal, and News Corp, which could be salivating over the synergies with Dow Jones. The stake looks beyond the means of other trade buyers or private equity. Bloomberg’s earnings before interest, tax, depreciation and amortisation last year were in the region of $1.6bn; a takeout would have to be
at a double-digit multiple.
Whether Mr Thain wants to sell the whole thing is another matter. The asset is still carried on Merrill’s balance sheet at $28m, so would incur a huge capital gains tax hit. He could, therefore, sell a portion of the stake – marking up the rest of the position accordingly – while offloading a piece of asset manager BlackRock, of which it owns 49 per cent. It is a measure of the bank’s desperation that anything that can be converted to cash will be.
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