Pic: Wacky Packages
Earlier this year, Merrill Lynch CEO John Thain pissed off BlackRock CEO Larry Fink when Thain publicly mused about selling Merrill’s 49% stake in the fund manager. Thain wanted to sell off all or part of the position before Merrill’s 2Q08 earnings call, at which the bank eventually reported a worse-than-expected $4.7 billion net loss. Among his potential buyers were the Kuwait Investment Authority and Singapore’s Temasek, who were getting slaughtered on the investment they made in December 2007 in Merrill’s previous round of fund raising. This deal was supposed to give them a little payback.
Fine, we understand Thain needed some cash to try to stanch the bleeding, but he completely disregarded the fact that the two companies were in the middle of negotiating an extension to their relationship. Word got out about Thain’s musings and BlackRock’s stock price dropped a bit.
Fink’s revenge and the BigLaw connection after the jump.
Fink didn’t forget Thain’s wishy-washiness. Fink knew Merrill was weak, so not only did he lock Merrill up for 14 months (no sale without BlackRock’s consent), he negotiated a provision that would allow BlackRock to eviscerate Merrill’s voting rights if Merrill were subject of a change of control.
Fast forward two months, and Merrill gets picked off by Bank of America (another deal in which Thain doesn’t seem to have negotiated particularly well). As a “fuck you” to either Thain, for thinking about jumping ship and talking about it, or Bank of America, for who knows why, Fink exercised the cram-down this week.
Merrill Lynch will retain its 49.5% economic ownership, but is being reduced to a 4.9% voting interest. PNC , who must be in Fink’s good graces, is a 33% economic owner but will have a 47% voting interest.
The engagements were somewhat interesting. Skadden‘s Richard Prins (Calvin College BA ’72, Michigan JD ’77) represented BlackRock, and Wachtell‘s Nick Demmo (Yale BA ’93, Penn JD ’96) represented each of Merrill and PNC on the two separate exchange agreements.
What do you think, did Merrill and PNC waive a conflict or was there none to begin with? Did Thain screw up this deal or was he just in an impossible situation?
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