The Cost of Cash for Merrill

I thought it sounded like a good move for Merrill Lynch (NYSE: MER) when it announced recently that it was raising some fresh cash to buttress its balance sheet. But money isn't free for anybody -- least of all an investment bank that's written down billions of dollars in bad paper.

In its original announcement, Merrill provided a few details on the financing, including the fact that the investment would come from Singapore's Temasek and Davis Selected Advisors, and would be in exchange for newly issued common stock. What it didn't provide was the price at which it would be selling the equity.

On Thursday, an SEC filing from Temasek shed a bit more light on the investment. According to the filing, Temasek now owns 91.7 million shares of Merrill stock. Based on the announced $4.4 billion initial investment from Temasek, the deal was priced at $48 per share -- an 11% discount to the stock price on the day of the announcement and an 8% discount from yesterday's price.

With the credit markets about as liquid as stone right now, those willing to part with cash can get darn good terms. So while it's never ideal to be in a position to have to sell stock at a discount -- let alone do it when the stock is already beaten down -- the discount that Temasek got on Merrill's stock isn't all that bad.

So Merrill may not be in an enviable position, but it, along with its new CEO, seems to be making some good offensive moves to keep the ship righted. Only time will tell if others like Bear Stearns (NYSE: BSC) and Citigroup (NYSE: C) will find themselves taking similar paths.

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