Merrill may have to sell $10 billion BlackRock stake

By Dan Wilchins - Analysis

NEW YORK (Reuters) - Merrill Lynch & Co Inc MER.N may not want to sell its $10 billion stake in top performing money manager BlackRock Inc (BLK.N). But it may have no alternative.

The No. 3 Wall Street investment bank's other options to raise capital as it faces billions of dollars in write-downs are looking tougher to achieve.

That's because the market's appetite for new shares in financials is dwindling -- and because the terms of Merrill's recent capital raises make future sales particularly tough.

In addition, the chances look remote for a quick sale of its other major investment, a 20 percent stake in news and financial data company Bloomberg LP, analysts and bankers said.

BlackRock is publicly listed, which means Merrill Lynch's 49.8 percent stake could be sold to public investors or others quickly. Bloomberg, in contrast, is private and closely held, which would slow any sale.

"BlackRock is the only really viable asset to sell," said James Palmisciano, chief investment officer at the Gracie Credit Opportunities Fund, which is considering investing in Merrill Lynch bonds.

Merrill Chief Executive John Thain hinted that he would rather sell the Bloomberg stake on a call with investors last month, when he said that BlackRock is a strategically important asset. "Bloomberg is just a very good investment," he said.

But CNBC reported late last week that Bloomberg had offered to buy Merrill's 20 percent stake, which Thain said was worth $5 billion to $6 billion, for somewhere closer to $3 billion.

Finding other buyers for the stake could be difficult, bankers said. Bloomberg must approve the sale of the stake to any other party.

There is no shortage of media companies that would like to get a piece of what many industry observers say is a highly profitable business, but even some of the biggest conglomerates would have trouble shelling out $5 billion for a minority stake.

Some private equity investors could afford it, but there's little chance that they would want a passive stake.

"It's a minority stake and of no use to anyone else -- it is designed not to give any control or rights," said Dan Alpert, a banker at Westwood Capital.

It is also not immediately clear why Bloomberg would want to buy back the stake, and company executives and a spokeswoman declined to comment.

Bloomberg previously bought back 10 percent of itself that was in Merrill's hands, and used it as an incentive to reward top performers at the company, according to two people with knowledge of its inner workings.

It is possible that this could happen again, one of them said, or that Bloomberg simply could retire the stake and reissue it if it ever sold stock to the public.