Banking, finance, and taxes
Merrill Lynch Financing Deemed as Too Large of Discount (MER, GE)
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Merrill Lynch (NYSE: MER) raised some $6.2 Billion today, or at least up to that amount, and that is not inclusive of the unit sale to General Electric (NYSE:GE).
The breakdown is for up to $5 Billion from Temasek Holdings in Singapore for some $4.4 Billion at a price of $48.00 per share and an option to buy another $600 million in stock. Its ownership will be less than 10% of Merrill Lynch. When you consider that this closed at $55.54 on Friday, and shares have traded only as low as $50.50 this last year, they are being perceived as getting a deal. In fact, shares are now negative on the day because of the discounting. In another pact, Davis Selected Advisors will be making a long-term investment of $1.2 Billion in common equity.
Wall Street, Main Street, and even Pennsylvania Avenue want the brokerage firms on Wall Street to be able to shore up their books. They will even accept foreign ownership on a passive basis. But when the firms have to give away stock or debt at wholesale financing terms at what looked like a fire-sale, then traders start to lose some of their optimism behind the deal. If they are having to give away the shop, then traders and investors fear there might still be more bad headlines hitting the tape into 2008.
Shares of Merrill Lynch had been up considerably on the news but are now down just over 1% at $54.90 on the day. Conversely, General Electric (NYSE:GE) shares are up about 1% on hopes that since the terms of that unit purchase were not disclosed that maybe Merrill Lynch gave that away too.
We still feel that even at these high prices of financing, this will give the firms a better chance of sailing through rougher waters in 2008 and beyond. But money talks, and the current vote by stock traders is that the financing activities are at too steep of a price.
Jon C. Ogg
December 24, 2007
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