Merrill, Blackrock Set Talks for Stake Sale

Merrill Lynch and Blackrock have scheduled talks over Merrill’s possible sale of at least part of its 49 percent stake in the money management firm, sources familiar with the situation tell CNBC.

The discussions are likely to continue through the end of the week, in preparation for an announcement on July 17 when Merril announces second quarter earnings, sources said.

Merrill Lynch
Merrill Lynch

As reported earlier, Merrill is looking to sell its holding in two major assets — namely its 20 percent stake in Bloomberg LP and its stake in Blackrock -- in an attempt to drum up capital as Merrill prepares to announce possible additional writedowns of as much as $6 billion and a loss for the second quarter of this year.

Merrill and Bloomberg have held preliminary talks on the sale of the 20 percent stake, with Merrill asking for $6 billion and Bloomberg initially bidding $3 billion. (See CNBC's earlier report). Sources close to both firms say they will likely end up somewhere in the middle if a sale is eventually completed.

With Blackrock , the sale is a bit trickier; Merrill’s 49 percent stake is worth around $10 billion. But the two firms have a strategic alliance: Blackrock manages all of Merrill pension funds and mutual funds, so unwinding the entire relationship will be difficult. Sources inside Blackrock say they believe Merrill will only sell a piece of Blackrock and maintain the money management relationship if any sale is done

One thing is certain here: the situation is fluid. Talks can break down on either deal and Merrill CEO John Thain can conclude that he doesn’t need to sell even a piece of Blackrock because the money generated from the Bloomberg sale may be enough to cover the expected 2nd quarter loss.

But people close to both Merrill and Blackrock say that at least for now Thain is leaning toward completing both deals.

He has said that he wants to raise more money than is needed to cover losses to give Merrill a capital cushion.

In the meantime, speculation continues about exactly what Merrill will report next week. Analysts have steadily increased their forecasts for the level of writedowns expected from the company, and Fitch Ratings said Wednesday it has placed Merrill Lynch and its units on Rating Watch Negative. (Read more about the Fitch move here).

Merrill Lynch has recorded more than $30 billion of writedowns since the third quarter of last year. The third largest U.S. broker-dealer is expected to have suffered in the second quarter as bond insurers lost their top ratings and the structured credit market weakened.

Merrill Lynch sold its investment management business to BlackRock in 2006 in exchange for shares in the asset manager, whose funds it distributes.

-- Reuters contributed to this report.