UPDATE 1-Greenhill to exit merchant banking activities

* To sell merchant banking funds for $25 mln in stock

* To focus on advisory business

Oct 28 (Reuters) - Greenhill & Co Inc (GHL.N) said it agreed to sell the right to launch successor funds to its three merchant banking funds for about $25 million, to focus entirely on its advisory business.

The sale price is payable principally in Greenhill common stock, which will be retired, it said.

The company, which expects to complete the deal in the current quarter, said the purchaser will be an entity formed by Robert Niehaus, chairman of Greenhill Capital Partners.

Greenhill said it will retain its portfolio of Principal Investments, which had a fair market value of $178.5 million as of Sept. 30.

It intends to use the proceeds of the portfolio, as and when realized, to fund share repurchases and dividends as well as to reduce its modest outstanding debt.

The scale of the opportunity in the advisory business merits its undivided attention, it said in a statement.

Greenhill said capital needs and other differences between the two businesses inevitably become more pronounced as they each grow and it is easier to run them under separate ownership. (Reporting by Abhinav Sharma in Bangalore; Editing by Gopakumar Warrier)