Merrill investor Davis follows value tradition

NEW YORK, Dec 24 (Reuters) - Investor Christopher Davis, whose firm is buying $1.2 billion of stock in Merrill Lynch & Co Inc MER.N at a substantial discount, is known as a long-term value player who sometimes does years of research before making a portfolio decision.

On Monday Merrill said Davis Selected Advisers LP and Singapore's Temasek Holdings planned to buy as much as $6.2 billion of Merrill stock at $48 a share, or more than 13 percent below where the stock closed on Friday. The shares dropped 3 percent at the end of Monday's trading.

New York-based Davis Advisors was started by Christopher Davis' father, Shelby Davis, in 1969 and now manages more than $100 billion. His grandfather, Shelby Cullom Davis, also was a well-known investor.

In addition to the Davis and Selected funds, the firm manages the Clipper Fund, which owns 1.61 million shares of Merrill, according to data from fund research firm Lipper Inc, a subsidiary of Reuters Group PLC RTR.L RTRSY.O.

Christopher Davis, who is 42, was not available for comment.

About 35 percent of Davis' holdings are in financial services companies. Kenneth C. Feinberg, a co-portfolio manager for Davis, said his company contacted Merrill Lynch about two weeks ago, inquiring if it would be interested in getting an outside investor.

Feinberg said Davis believes in Merrill Lynch's franchise value, citing the strength of its more than 16,000 brokers and its 49 percent stake in asset manager BlackRock Inc.

"We think (Thain) has very high integrity," Feinberg said. "We have the right fellow at the top."

TOP RATINGS

Davis Selected Advisers is known not only for a good long-term track record but for a management culture that puts shareholders first.

Earlier this year fund research firm Morningstar Inc, in a review of corporate governance standards at more than 1,000 funds, gave top ratings to Clipper and Davis.

A Morningstar commentary about Clipper said the board of that fund was a "standard-bearer for corporate governance" while the management team was "fundholder-focused" and had reasonable fees.

According to the Web site davisfunds.com, the Davis family and its employees and directors have more than $2 billion of their own money invested in the funds.

The Davis investment approach seeks "durable, well-managed businesses that can be purchased at value prices and held for the long-term," the Web site says. The average holding period of a stock in the Davis New York Venture Fund is four to seven years.

A Morningstar commentary on Clipper, dated Aug. 30, noted that the firm's heavy concentration in financial stocks had hurt returns as subprime mortgage problems caused havoc in a wide swath of the sector.

"Over the years, Davis and (co-manager Kenneth) Feinberg have shown a knack for finding firms able to survive and thrive after such dislocations," Morningstar wrote.

Clipper is up 0.25 percent year-to-date through Dec. 21, compared with nearly 5 percent for the Standard & Poor's 500 stock index on a total return basis, according to Morningstar.

Selected American Shares, also managed by Davis and Feinberg, is up 5.46 percent so far this year, ahead of the S&P by 61 basis points, according to Morningstar. (Reporting by Cal Mankowski; Additional reporting by Tim McLaughlin; Editing by Brian Moss)