Merrill Turns Away Private-Equity Offer
Merrill Lynch
(MER)
earlier this week "rebuffed" an offer from private-equity firm TPG to provide an equity investment, but the two firms discussed other ways to do business together, sources familiar with the matter said.
Executives from both firms, including Merrill CEO John Thain and president Greg Fleming and TPG's David Bonderman, met in New York on Monday,
The Financial Times
reported.
TPG had expressed interest in injecting capital into troubled Merrill Lynch, but it was "an offer Merrill rebuffed," according to
Reuters
. The two firms also discussed ways in which the two could do business together including co-investing in private-equity deals and business expansion in China and Russia, according to sources.
Merrill Lynch last year raised $12.8 billion in December and January through private-equity investments and private placements, making it one of many financial firms, including
Citigroup
(C) - Get Report
,
Wachovia
(WB) - Get Report
and
National City
(NCC)
, forced to raised capital as the credit crisis lingers.
TPG itself led a group of investors that injected $7 billion into
Washington Mutual
(WM) - Get Report
earlier this month.
Meanwhile this week, Nat City received its own $7 billion capital infusion earlier from investors led by Corsair Capital.
The news of TPG approaching Merrill comes a week after the firm
reported a first-quarter net loss
from continuing operations of $1.97 billion, of $2.20 a share. The losses were fueled by roughly $6.6 billion in writedowns on securities backed by subprime and other mortgage-related assets as well as leveraged loans.
Thain had reiterated on the company's conference call that the brokerage firm remains well capitalized and does not have plans to raise additional common equity.
"At the end of the year last year, we raised $12.8 billion of new capital and for
2007 we lost $8.6 billion, so we basically raised $4.2 billion of excess capital," Thain said on Merrill's earnings conference call. "That excess capital was intended to reassure the market that we didn't have to come back into the equity markets and give us the capital base to go forward into 2008. And that continues to be the case."
Still Merrill may issue preferred shares if the need arises, Thain said to a group of reporters last week.
Additionally, on Thursday, the company declared a dividend of 35 cents on its common stock.
But according to Sanford Bernstein analyst Brad Hintz, Merrill Lynch on Tuesday had announced the sale of $2.55 billion of perpetual preferred equity.
"Having dismissed the need to raise new common or convertible and having taken the sale of
BlackRock
(BLK) - Get Report
and Bloomberg off the table,
Merrill Lynch's management was running out of options for boosting equity," Hintz writes in a Friday note. "This preferred is certainly not the highest quality equity and though we are concerned about deterioration in the quality of Merrill Lynch's equity base, it does strengthen the firm."
For its part, TPG has been actively eyeing opportunities among banks and brokerages, besides WaMu. It is expected to close a more than $16 billion buyout fund, some of which will be deployed into financial services companies,
Reuters
says.
TPG declined to comment Friday regarding Merrill Lynch, according to an outside spokesman. A spokeswoman for Merrill Lynch also declined to comment.
Shares of Merrill recently were up fractionally to $48.43.
Analysts say that many more banks, including possibly
Bank of America
(BAC) - Get Report
, will need to raise capital this year.
Citi in January slashed its dividend and raised $12.5 billion in convertible preferred securities as writedowns and ballooning loan losses severely crimp the financial titan. About half of this amount, or $6.88 billion, was purchased by the Government of Singapore Investment Corp. Other investors included the Kuwait Investment Authority, former Chairman and CEO Sandy Weill and his foundation, and long-time investor Prince Alwaleed bin Talal.
Additionally, Citi in late November sold $7.5 billion of equity units to the Abu Dhabi Investment authority and issued additional debt securities during the fourth quarter providing $4.3 billion in capital.
Wachovia said last week that it planned to raise $7 billion through a common stock offering.