Bloomberg LP May Not Need to Panic

At a time when Bloomberg LP is concerned that its business is suffering because many of its major customers are laying off people amid the credit crisis, the company received some good news on April 17 when Merrill Lynch & Co., which owns 20% of Bloomberg LP, announced that it does not plan to raise additional capital to support its business, appearing less likely that the firm will sell its stake in the company.

Citigroup, the world’s largest bank, has already planned for 13,200 job cuts since January. It is still unsure how many of Bear Stearns 14,000 headcounts would be kept by JPMorgan Chase after the fire-sale. Merrill Lynch also announced its workforce has shrunk by 4,000 since the end of 2007.        

Alec McCabe, senior editor at Bloomberg LP, said 85 percent of the company’s revenue comes from client’s continuous subscription to its provision of financial data and news through Bloomberg TerminalTM, sold at less than $2,000 per month per machine.         

“In previous recessions, we’ve offered jobless clients the ability to retain a Bloomberg a certain period of time,” McCabe said. “But we’re not charity; we’re business, too.”

Every cloud has a silver lining. John A. Thain, chairman and chief executive officer of Merrill Lynch, said during the firm’s first-quarter 2008 results conference call that they do not need to replenish its capital after they raised $12.8 billion of new capital at the end of 2007 to cover that year’s $8.6 billion of loss.        

“We are well capitalized under the liquidity acid test,” he said. “The excess raise of $4.2 billion in capital was intended to reassure the market that we don’t have to come back into the equity market.”

The result echoed with McCabe’s confidence in the company’s earning capability, which had survived the 1997 Asian financial crisis and the later-on Dot-com bubble burst.

“During an economic downturn, our clients would make certain expense cuts, fire people, but information is key to overcoming any adverse situation,” he said, believing subscription would not drop drastically.

According to Merrill Lynch’s 2007 annual report, Bloomberg LP was carried at zero balance on the firm’s balance sheet because the investment cost has been recovered through cash dividend received, a treatment that is in accordance with the Generally Accepted Accounting Principle.

Merrill Lynch’s announcement came as many analysts had expected. Paul Gulberg, an analyst from the research firm Portales Partners, said Bloomgberg LP had proved itself as a cash cow for Merrill Lynch. He said Merrill Lynch’s stake in Bloomberg could worth approximately $4 billion based on a hypothesis he did by pitching Bloomberg’s limited released 2006 figure against its competitor, the publicly-traded Thomson Corp.

However, he also cautioned investors be street smart since Merrill Lynch has posted its third straight quarterly loss.

“As we have seen in the case of Bear Stearns, things can change in a matter of days,” he said. “Without suggesting anything, in this market, we cannot exclude any possibilities, as improbable they may be.”

~ by supermann on April 17, 2008.