Umm, I thought we were supposed to believe that Merrill Lynch’s (MER) selling a part of its Bloomberg stake and by taking $40 billion of writedowns this year alone, investors were (almost?) out of the woods.

Guess again, news came overnight that Merrill will be selling more than $8 billion in new stock (read, diluting existing shareholders) at preferential terms to the Singaporean buyers of the last slug of stuck Merrill stuffed everyone with.

So, as Roger Ehrenberg asks, “…after all this, Is there more to come?”

Let’s get this straight:

CDO book:
Bloomberg reports that Merrill is selling its $30+ billion bond portfolio for 1/5 of face value.  I guess that’s better than 0.

New stock offering:
A lesson in dollar-cost averaging for Singapore’s Termasek.  Merrill is paying Temasek $2.5 billion to offset losses in Temasek’s previous investment in Merrill and to encourage the fund into putting $3.4 billion more into MER stock.

Bloomberg:
According to CEO Thain, Merrill is selling “a controlling stake [in Bloomberg], so we’ll sell more than 51%, but the exact percentage hasn’t been totally determined yet.”

What does that mean?  How much more than 51%?  Isn’t selling off that asset better than massively diluting shareholders after a year that has seen MER stock drop over 61%  Isn’t Bloomberg not even close to being core to what Merrill does anyway?

BlackRock:
Also, why are we holding on to this non-core asset?  Again, according to Thain, “BlackRock as we’ve always talked about is strategic to us. We in fact with the discussions with BlackRock have broadened and lengthened our distribution agreement with them and we continue to believe that that is a very good and important partnership for us and is working well with us.”  I guess what Merrill is saying is that it certainly helps to have a financial relationship with a buy-side firm to help with deal placement and uptake.  Not particulary inspiring and again, they’re smooshing the small investors.

The Bloomberg piece quoted above ends with a great quotation:

“Why these assets are written down when you’re selling them and weren’t written down in your earnings is a question,” said Ralph Cole, a senior vice president in research at Ferguson Wellman Capital Management Inc. in Portland, Oregon, which oversees $2.7 billion and doesn’t own Merrill shares. “This kind of announcement is surprising and a little disheartening.”

I may sound angry, but come on, guys.  I don’t even own the stock but this is the fourth share sale this year and all along, management has said that it has sufficient capital.  Not a great way to treat existing shareholders and certainly not enough to engender enough trust to lure new investors off the sidelines.

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With shares in financials and hi-tech getting crushed, I think we are about to see a new trend develop. You’re probably thinking that I will suggest something along the lines of re-branding. Nope. While we did that, I am talking about a change much less cosmetic and much more fundamental. Taking publicly traded companies private. Today’s NY Post (no new revelations on A-Rod/Madonna so I decided to look at the business section) has an interesting report on struggling investment bank Lehman Brothers (LEH) trying to figure out a way to go private.

“According to sources, talks internally centering on privatizing Lehman have gotten very serious consideration after a blistering onslaught of rumors and questions about the firm’s solvency have caused the venerable bond shop to shed more than 79 percent this year.”

Lehman isn’t alone. Israeli hi-tech firm BluePhoenix (BPHX), whose shares have been nailed as well, has mentioned that they are thinking about going private as well.

For companies this is a great situation. They can go private, reset the cap-tables, retain employees- who are currently holding options that even a deep sea diver would have trouble recovering- by issuing new options. Then they can focus on stabilizing their business, getting back to profitability, and then in a few years after this current crisis is a memory, go public in a ‘much anticipated’ IPO. Ultimately, the companies will be back trading at pre-bear market levels. Senior management, who share much if not all the blame for the current debacle, will come out smelling like roses, as their stock will be worth hundreds of millions of dollars.

Sounds good. So who loses? You guessed it. The same people who always get left holding the bag. The INVESTORS. You see, they are the ones who bought into Lehman at $75 a share 12 months ago, and will be lucky to get $15 on a deal of some sort. They heard analysts beat the drum on BluePhoenix at $22 about 9 months ago, and decided to invest, only to cringe every time they hit refresh on Yahoo finance to see if the stock has held the $4 level.

Going private may be a great solution for a company to weather the current market malaise and return to health. Unfortunately for investors, it will be another in a long line of recognized tax losses.

Aaron Katsman, IsraelNewsletter.com

Disclosure: Author’s fund has a position in  BPHX. He has no position in any other stock mentioned as of 7/15/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
www.IsraelNewsletter.com  

With the bailout of Bear Stearns (BSC), the US Dollar sinking against most major currencies, crude oil and gold prices up near all time highs, the question for investors is what they should do? I spent today with my ear glued to the telephone as client after client called up wanting to know what they should do with their investment portfolios. Obviously, no one can predict the future, but with all the bad news out there today, isn’t it interesting that the stock market didn’t crash.

Anyone who watched the news today would have thought that the end of the financial markets, as we know them, was at hand. But that didn’t happen.

No one can predict a market bottom, but there is an old investing adage that says that, “when there is blood in the streets,” that is the time to invest.

Could things get any worse?

Disclosure: Author has no position in any other stock mentioned as of 3/17/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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By Zack Miller
IsraelNewsletter.com

Bloomberg ran an article over the weekend saying that Bank HaPoalim was in due-diligence discussions over an undisclosed Russian bank.

Somehow, although we don’t yet know the name of the bank, we do know the size of the transaction. Bloomberg pegs Ma’ariv’s estimate of the transaction size at $150 million for a 74 percent stake in the firm, representing 3.5x on assets.

“Some of the payment will be used to increase the bank’s capital and to open more retail branches, Ma’ariv said. Hapoalim believes the Russian bank will be able to earn a 12 percent to 13 percent return on equity, it said.”

This follows in-line with our thesis that Israeli banks, utilities, and cellular firms need to look towards international expansion to continue growth. I wrote a while back that Israeli firms can continue to squeeze more out of their customers (banks by offering more services and cellular firms by introducing data to boost ARPU) but Israel is a mature market. Mature markets are defined by penetration of services.

My partner and esteemed perma-bull, Aaron Katsman, has written about the spillover effects from the subprime/real estate issues in the US and how they might affect Israeli banks.

Bank Hapoalim wants to use this investment to increase its retail presence. Russia looks prime for expansion.

Disclosure: Author’s fund has no position in any stock mentioned as of 11/09/2007.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter.  Stay ahead of the game and make smart decisions in Israel stocks.  Go here to learn more.

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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@israelnewsletter.com

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