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.
Merrill owns 20 percent of the financial information and news company and Thain has stated that he thinks the stake is worth $6 billion. But according to people inside Merrill, the two sides have held preliminary talks about Bloomberg, which has the right of refusal on any deal, bid far less, something close to $3 billion.
A Bloomberg spokeswoman said that "no discussions are taking place." Merrill had no comment.
In terms of asset sales, that leaves Blackrock . 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.
The possible sale of Blackrock shows just how difficult the situation is for Thain and Merrill. Thain replaced former CEO Stan O’Neal who left because of the firm’s wrong-way bet on subprime bonds, and billions of dollars in write-downs due to losses from these securities on Merrill’s books. The losses caused Thain to seek additional capital and dilute shareholder value further.
After the additional capital was raised Thain has repeatedly said that Merrill’s financial health was improving and the firm didn’t need new money from investors. But CNBC has learned from people inside the firm that Merrill is expecting a loss for the second quarter of this year, and write-downs of between $3 billion and $5 billion.
Now, people inside Merrill say they believe the firm will have to raise capital to bolster its balance. 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.