Merrill Lynch woes stir Bloomberg speculation

The headquarters of Merrill Lynch is seen in this undated file photo.

NEW YORK (Reuters) - Merrill Lynch & Co Inc. MER.N may look to sell its 20 percent stake in Bloomberg LP to raise capital after writing down $8.4 billion of assets last quarter, some investors have said.

Merrill Lynch Chief Executive Stan O'Neal said on Wednesday the company is looking at selling "certain non-core assets."

The Bloomberg stake is a prime example of such an asset, and selling it off could be a much cheaper way to raise money than selling securities, analysts said.

"Assets like Bloomberg are a great rainy day fund for Merrill Lynch. Guess what? It's pouring," said James Ellman, president, Seacliff Capital, a hedge fund that owns Merrill Lynch shares.

Some analysts and fund managers thought there would be strong interest in buying the stake, estimated to be worth $5-10 billion, if Merrill did decide to seek a buyer. That would value the entire closely held company, which sells financial data and news to investment professionals, at up to $50 billion.

Merrill's stake cannot be sold to a direct competitor and Bloomberg has the right of first refusal to buy the stake, a source familiar with the situation said.

Reed Phillips, a media banker at boutique investment bank DeSilva & Phillips, thought Bloomberg may want to buy the shares back.

DUBAI OR CHINA?

"It could be an opportune time for Merrill to consider selling because Bloomberg probably continues to do very well and the company would be valued at a high level," said Phillips.

Ellman estimates that Merrill's stake could be worth some $10 billion before taxes. That's based on estimates of Bloomberg's sales of desktop news and data terminals generating some $1.5 billion of annual operating profit, and adding in the value of its television and radio networks and Tradebook trading product.

In a research note published on Thursday, Goldman Sachs estimated the stake could be worth $5 billion.

Sovereign investment pools from Dubai or China also might be interested, Ellman said.

One fund manager who asked not to be named said credit rating firm Moody's Corp (MCO.N) might be interested in Bloomberg's terminals as a way to distribute ratings information.

Another potential buyer would be media conglomerate News Corp. NWSa.N, which might be interested in buying a stake to find ways to link up Bloomberg's news operations with Dow Jones & Co Inc, DJ.N the fund manager added.

The speculation was spurred by Merrill Lynch on Wednesday reporting the biggest quarterly loss in its history after writing down $8.4 billion, mostly from bad investments related to risky subprime mortgages.

O'Neal said on a conference call that the bank was exploring the "potential divestiture of...non-core capital intensive businesses and monetization of one or several of our private holdings".

He later added: "We are not going to comment on any specific investments at this point, including Bloomberg."

The majority of Bloomberg -- 68 percent -- is owned by founder Michael Bloomberg, mayor of New York City.

To be sure, there are reasons that Merrill, which originally invested in Bloomberg in 1987, could choose to hold onto its Bloomberg stake, some said.

The fund manager who requested anonymity said, "They'd make a lot more money if they waited a few years, took Bloomberg public, and sold their shares then. They'd also get credit in league tables."

An investment banker, speaking on condition of anonymity, said it was unlikely that anyone would want just a 20 percent stake. That banker thought it most likely that private equity would try and buy the entire company at some future point.

In October 2006, Michael Bloomberg said the company was not then for sale, although he said he had been approached by potential buyers.

Bloomberg and Reuters are direct competitors.

Bloomberg declined comment.

(Additional reporting by Tim McLaughlin in New York)