Temasek Unscathed From Merrill Sale; Had Minimum Part
By Costas Paris and John Jannarone Of DOW JONES NEWSWIRES 15 September 2008
SINGAPORE (Dow Jones)--Singapore state investment company Temasek Holdings Pte. Ltd. had little say in Merrill Lynch’s (MER) surprise decision to be sold to Bank of America (BAC) despite being Merrill’s biggest single investor, but may emerge from one of Wall Street’s most dramatic crisis relatively unscathed, people familiar with the matter said Monday.
“They (Temasek) were not informed of Merrill’s plans until late and then had a minimum role in the talks with Bank of America as they don’t hold a seat on Merrill’s board,” one of those people told Dow Jones Newswires.
With Lehman Brothers Holdings Inc. (LEH) heading for bankruptcy after potential buyers walked away, Bank of America agreed early Monday to buy Merrill for $50 billion or about $29 a share in an-all stock transaction.
“They (Temasek) bought for an average $24 per Merrill share so they are above water. Given the circumstances it’s not a bad deal,” the person said. “But it will all depend on how Bank of America shares do when they open Monday morning in New York.”
Temasek is the largest single investor in Merrill with a 14% stake or about 214 million shares, indicating it could earn as much as $5 a share or about $1 billion in paper profit based on current prices.
Under terms of the transaction, Bank of America would exchange 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, Bank of America said in statement. The price is 1.8 times stated tangible book value.
Temasek has yet to decide whether it will keep or sell the Bank of America shares it receives, a second person said.
“Suddenly Temasek is holding shares of a commercial bank (BoA) rather than an investment bank. They have to answer the question whether they want this kind of an investment,” this person said.
“The investment team is meeting now. Their decision on how to handle the Bank of America shares will also depend on how they view the long-term prospects of the bank. Temasek always looks at the long term.”
Analysts said Temasek may welcome the opportunity to own a portion of a commercial bank rather than an investment bank because the former may be more stable and has firmer backing from the U.S. Federal Reserve.
“It may be worth Temasek’s while to keep a position in the U.S. financial sector if it’s an investment in one of the strong players,” said Song Seng Wun, an economist at CIMB-GK in Singapore. “Temasek can ride on who’s left and it looks like they’ve probably made some money along the way.”
Temasek bought about 9% of Merrill last December for $5 billion, or $48 a share, but its effective purchase price was reduced in July when the bank gave it another $2.5 billion in shares. The transfer was a result of a price-protection measure triggered when the bank raised more funds from other investors at a lower price per share.
Merrill shares were trading at about $24 when the second fundraising was announced. At the time, Temasek also invested another $900 million in new cash, raising its stake in Merrill to 14%.
Merrill’s stock came under pressure last week as concerns about Lehman Brothers Holdings Inc. (LEH) fanned worries about its own health. Merrill’s shares dropped 36% in the week, cutting $15 billion off of its market value, which stood at $26 billion on Friday.
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Temasek Unscathed From Merrill Sale; Had Minimum Part
By Costas Paris and John Jannarone
Of DOW JONES NEWSWIRES
15 September 2008
SINGAPORE (Dow Jones)--Singapore state investment company Temasek Holdings Pte. Ltd. had little say in Merrill Lynch’s (MER) surprise decision to be sold to Bank of America (BAC) despite being Merrill’s biggest single investor, but may emerge from one of Wall Street’s most dramatic crisis relatively unscathed, people familiar with the matter said Monday.
“They (Temasek) were not informed of Merrill’s plans until late and then had a minimum role in the talks with Bank of America as they don’t hold a seat on Merrill’s board,” one of those people told Dow Jones Newswires.
With Lehman Brothers Holdings Inc. (LEH) heading for bankruptcy after potential buyers walked away, Bank of America agreed early Monday to buy Merrill for $50 billion or about $29 a share in an-all stock transaction.
“They (Temasek) bought for an average $24 per Merrill share so they are above water. Given the circumstances it’s not a bad deal,” the person said. “But it will all depend on how Bank of America shares do when they open Monday morning in New York.”
Temasek is the largest single investor in Merrill with a 14% stake or about 214 million shares, indicating it could earn as much as $5 a share or about $1 billion in paper profit based on current prices.
Under terms of the transaction, Bank of America would exchange 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, Bank of America said in statement. The price is 1.8 times stated tangible book value.
Temasek has yet to decide whether it will keep or sell the Bank of America shares it receives, a second person said.
“Suddenly Temasek is holding shares of a commercial bank (BoA) rather than an investment bank. They have to answer the question whether they want this kind of an investment,” this person said.
“The investment team is meeting now. Their decision on how to handle the Bank of America shares will also depend on how they view the long-term prospects of the bank. Temasek always looks at the long term.”
Analysts said Temasek may welcome the opportunity to own a portion of a commercial bank rather than an investment bank because the former may be more stable and has firmer backing from the U.S. Federal Reserve.
“It may be worth Temasek’s while to keep a position in the U.S. financial sector if it’s an investment in one of the strong players,” said Song Seng Wun, an economist at CIMB-GK in Singapore. “Temasek can ride on who’s left and it looks like they’ve probably made some money along the way.”
Temasek bought about 9% of Merrill last December for $5 billion, or $48 a share, but its effective purchase price was reduced in July when the bank gave it another $2.5 billion in shares. The transfer was a result of a price-protection measure triggered when the bank raised more funds from other investors at a lower price per share.
Merrill shares were trading at about $24 when the second fundraising was announced. At the time, Temasek also invested another $900 million in new cash, raising its stake in Merrill to 14%.
Merrill’s stock came under pressure last week as concerns about Lehman Brothers Holdings Inc. (LEH) fanned worries about its own health. Merrill’s shares dropped 36% in the week, cutting $15 billion off of its market value, which stood at $26 billion on Friday.
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