Merrill Lynch traded like crap all day and now we know why. John "we-don’t-need-to-raise-no-stinking-capital" Thain’s latest plan includes a humongous and dilutive equity capital raise, as well as a sell off of much of the kaka paper on the firm’s balance sheet.
They’re selling $30.6 billion gross notional amount of U.S super senior ABS CDO’s, currently carried on their books at $11.1 billion, for the monumental sum of $6.7 billion to Lone Star Funds. And they’re financing 75% of the purchase price. So Merrill is selling the paper at 21.6% of face, and 60.4% of the latest book value. And that’s producing a fresh Q3 writedown of $4.4 billion. Nice!
The company is also issuing approximately $8.5 billion of common stock in a public offering launched today. Temasek Holdings, Merrill’s largest shareholder, will buy $3.4 billion of the stock. In addition, Merrill Lynch’s executive management team "intends to purchase approximately 750 thousand shares of common stock in the offering". And let’s not forget that Temasek’s investment agreement contained a reset provision: Merrill will pay them $2.5 billion, which Temasek will invest back in the publc offering without a future reset provision.
In addition, $5.4 billion of the $6.6 billion of outstanding mandatory
convertible preferred holders have agreed to exchange their outstanding
preferred stock for approximately 195 million shares of common stock, plus
accrued dividends payable in cash or stock at the option of the holder. A holder
of $1.2 billion of outstanding mandatory convertible preferred has agreed to
exchange their securities for new mandatory convertible preferred securities
with a reference price of $33.00. The reset feature for all securities exchanged
has been eliminated.
Here’s the full press release:
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Tags: Credit Crunch, John Thain, Merrill Lynch
