/ 18 July 2008

Merrill Lynch sells 20% Bloomberg stake for $4,5bn

The investment bank Merrill Lynch has agreed to sell its 20% stake in Bloomberg for $4,5-billion, in a deal which provided a glimpse of the fortune amassed by the news service’s founder turned politician, Michael Bloomberg.

Merrill is offloading its interest in Bloomberg to raise money to support its balance sheet, after huge losses on securities backed by sub-prime mortgages.

The news and data company is buying back the shares itself in a transaction which assumes a valuation for the entire Bloomberg empire of $22,5-billion. This would make Michael Bloomberg’s personal stake of 68% worth $15-billion.

The entrepreneur, who set up the media organisation in 1981, has been the mayor of New York since 2002 and was tipped last year as a possible presidential candidate.

Although Bloomberg was known to be a billionaire, the price tag comfortably outstrips previous estimates of his worth. Forbes magazine’s annual ranking of the world’s richest people recently suggested he had a fortune of $11,5-billion.

Bloomberg terminals are a fixture on trading desks throughout Wall Street and the Square Mile, making the firm a highly lucrative business, and its true value may be even higher. Anxious to raise cash, Merrill was seen as a stressed seller and therefore in a poor bargaining position to get a good price.

Merrill was preparing to release second-quarter earnings figures yesterday, which were tipped to include write-offs of $5-billion to $6-billion due to losses on mortgage-related securities and exposure to investments guaranteed by struggling monoline insurers.

In a research note, Matt Albrecht, an equities analyst at Standard & Poor’s credit rating agency, said the sale of Merrill’s stake in Bloomberg would provide a breathing space: ”We would view this move as a positive, since it would generate sufficient capital to offset the second-quarter write-downs we expect from its troubled mortgage and loan portfolio.” – guardian.co.uk