Back in 1985, investment-banking powerhouse Merrill Lynch bought a 30% stake in Bloomberg LP for $30 million. A few years later, Bloomberg bought back a 10% stake for $200 million, leaving Merrill with 20% — which it’s now selling, again to Bloomberg, for $4.5 billion.
Because of its financial duress, Merrill sold its stake at a discount, these people said. John A. Thain, Merrill’s chief executive, valued the Bloomberg stake at $5 billion to $6 billion when he spoke at a conference last month.
Since there were no other bidders, and since this was a sale under duress, it’s reasonable to assume that the real value of the 20% stake is something over $5 billion, and is quite possibly more than $5.5 billion, especially now that it has been consolidated into the principal’s controlling 92% shareholding. If that’s the case, then Bloomberg is now worth more than Merrill, whose market cap is $27.5 billion.
What’s more, Merrill isn’t even getting $4.5 billion in cash: it needs to lend that money to Bloomberg first. According to the NYT, Merrill "is providing financing for the purchase": essentially it’s converted Bloomberg equity into Bloomberg debt. Still, I’m sure that under some accounting rule or other this has done wonders for Merrill’s balance sheet.