Tuesday, September 16, 2008

Temasek May Reap $1.5 Billion Gain From Merrill Lynch Takeover

By Chen Shiyin

Sept. 15 (Bloomberg) -- Temasek Holdings Pte., the biggest shareholder of Merrill Lynch & Co., may reap gains of $1.5 billion from the sale of the third-biggest U.S. securities firm to Bank of America Corp.

The biggest U.S. consumer bank said today it agreed to buy Merrill for $50 billion in stock, or $29 a share. The Singapore sovereign wealth fund paid $5.9 billion since December for about 14 percent of Merrill at an average price of $23.11 a share, based on Bloomberg calculations from exchange filings.

Bank of America's purchase price is 70 percent more than Merrill's closing price of $17.05 in New York trading on Sept. 12. The shares fell 68 percent this year, after the company reported writedowns and credit losses of more than $52 billion, the second-most among the world's largest banks and securities firms, according to data compiled by Bloomberg.

``It's a huge premium and I expect that there's been some discussion behind closed doors to come up with a price that is justifiable and that everyone is happy with, including Temasek,'' said Daphne Roth, Singapore-based head of equity research in Asia at ABN Amro Private Bank, which manages about $30 billion of regional assets.

Bank of America's purchase will help ensure that 94-year- old Merrill, which employs the largest U.S. brokerage force and owns about half of New York-based BlackRock Inc., won't become the next casualty of the global credit crisis. So far, Merrill has suffered $19 billion in net losses tied to mortgages.


Temasek, which manages more than $130 billion, first paid $5 billion between December and February for about 10 percent of Merrill at $48 a share.

The Singapore company said on July 29 it will invest a further $900 million in the securities firm, after receiving a $2.5 billion so-called reset payment for losses from its earlier purchase. The sum was used to pay for $3.4 billion of Merrill stock at $22.50 a share, according to filings with the U.S. Securities and Exchange Commission.

``It is premature for Temasek to comment,'' the Singapore company said in an e-mailed statement today.

Other key investors who took stakes in the New York-based brokerage may also join Temasek in reporting gains from their investments.

Korea Investment Corp., one of at least six investment funds that bought a combined $6.6 billion of convertible preferred shares from Merrill in January, said in a statement on July 29 that it converted 72 million Merrill shares at $27.50 apiece.

Korea Investment's Gains

The sale of Merrill to Bank of America will net the Seoul- based fund profits of about $108 million, according to Bloomberg calculations. An official at the sovereign wealth fund declined to comment today.

Kuwait Investment Authority, a fund that manages the Middle Eastern emirate's wealth, held a 6 percent stake, or about 73.9 million shares, in Merrill after converting $2 billion of convertible preferred stock, according to an Aug. 6 regulatory filing with the Securities and Exchange Commission. An official couldn't immediately be reached in his office and didn't respond to a e-mailed query.

Davis Selected Advisors LP, a closely held money manager, and Mizuho Financial Group Inc., Japan's third-largest publicly traded bank by market value, were among other investors who bought stakes in Merrill.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net.

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