On October 13th, the U.S. Treasury announced that it would help major financial institutions establish a $100 billion fund (the Super Fund) to purchase distressed mortgage-backed securities.
By then, the U.S. had realized that if the plunge in CDO bonds continued, their investment banks would continue to suffer losses, potentially leading to even greater consequences.
On October 23rd, the American Bankruptcy Institute announced that the number of consumers filing for bankruptcy in September had increased by 23% year-on-year, reaching nearly 69,000!
The stock market immediately reacted to this data, with both the Dow Jones Industrial Average and the Nasdaq falling.
The next day, on October 24th, Merrill Lynch, a top global brokerage firm, announced a $7.9 billion loss in the third quarter of this year due to the subprime mortgage crisis.
The day before, Nomura Securities, Japan's largest brokerage firm, also announced a $620 million loss for the quarter.
On October 30th, UBS, Europe's largest bank by assets, announced its first quarterly loss in nearly five years, reaching 830 million Swiss francs, due to losses on subprime-related assets.
On October 30th, Merrill Lynch announced that its current CEO, Stan O'Neal, had "decided to retire immediately." His resignation was apparently due to Merrill Lynch's $7.9 billion impairment charge on subprime mortgage-related assets in the third quarter of this year, resulting in a $2.24 billion quarterly loss. This marked Merrill Lynch's first quarterly loss in six years and its worst performance in its 93-year history. This
angered Merrill Lynch shareholders, but greatly delighted Baron, as Merrill Lynch's stock price had plummeted 30% year-to-date—meaning their short position on the company had yielded substantial profits.
Of course, the sharp drop in share price wasn't limited to Merrill Lynch; it was also in Thomson AG.
Since mid-October, when IE Fund began increasing its short position on Thomson AG, the company's market value has fallen by over 20% from its previous high, with its stock price hovering around $37.
Initially, the Thomson family simply assumed the stock price was a result of a broader market correction following the Dow Jones Industrial Average's all-time high.
But they soon discovered something was amiss. It was clear someone was selling Thomson Group shares en masse, causing its stock price to plummet at a rate far exceeding that of other companies in the same industry.
Thomson Group, a financial information distributor, quickly discovered through investigation that its share price decline was deliberately manipulated.
Now, they faced a choice—in fact, they didn't have to choose at all. The acquisition of Reuters was their most important priority, and at this point, Thomson Group certainly didn't want its stock to be affected by short selling.
Thomson Group quickly issued a statement, confirming that operations were normal and that there were no undisclosed information. They also announced that they would allocate $500 million to a share repurchase program and that they wouldn't rule out further funding in the future to stabilize the stock price.
Thomson Group had previously sold its education-related businesses, raising over $8 billion.
However, the Thomson family would have concerns about how to use these funds.
First of all, these funds belong to the Thomson Group. If these funds are used to repurchase stocks, then these stocks will eventually belong to the Thomson Group, not the Thomson family. Often, when such companies repurchase stocks, they will destroy them to reduce the group's total share capital. Correspondingly, the value of the reputable Thomson stocks will also increase, which will naturally give the market confidence and stabilize the stock price. However, this would benefit not only the Thomson family but all shareholders.
Furthermore, these funds were originally intended for the Thomson Group's acquisition of Reuters. If they were to use too much of them and not replenish them, the acquisition would inevitably be impacted.
If the Thomson family were to repurchase shares, they
wouldn't be able to come up with so much money immediately... a very difficult situation.
However, the situation subsequently left the Thomson family no room for hesitation. Remember, the IE Fund had already purchased $1 billion worth of Thomson Group shares and, prior to that, had sold all of them during the stock market downturn.
Subsequently, the IE Fund used the proceeds from the stock sale to invest in Thomson Group shares, continuing to sell them. This caused Thomson Group's stock price to continue to fall, and the decline was far greater than that of other stocks that had seemingly been unaffected by the subprime mortgage crisis.
Similarly, the decline in Thomson Group's stock price also affected Reuters, casting doubts on the merger between the two parties.
Reuters was also not spared, with its share price plummeting by over 10% during this period. While the decline was not as dramatic as Thomson's, it nonetheless negatively impacted the relationship between the two parties.
Following the sharp drop in Reuters' share price, many Thomson shareholders demanded that Thomson increase its offer. After all, the sharp drop in Reuters' share price meant that they had lost out on the equity they would have received in a stock swap, rather than a cash offer.
Similarly, within Thomson, although the Thomson family's holding company holds over 70% of Thomson's shares, other shareholders have also called for a reconsideration of the Reuters acquisition. Given the current volatile share price of the group and the decline in Reuters's share price, forcing a merger between the two parties could even risk jeopardizing Thomson's operations.
Furthermore, the delay in final antitrust rulings by market regulators in the United States and the United Kingdom has forced Thomson to focus its efforts on the acquisition.
Even though the Thomson family used some of their own funds to buy Thomson Group shares, and later used $500 million of group funds to repurchase shares, the stock's downward trend was still unstoppable. After a brief rebound, it continued its downward trend.
After all, with the overall stock market downturn, investors grew increasingly cautious, and many recognized the risks involved. Consequently, few funds were willing to invest in the Thomson family to "support the bottom"—after all, Thomson Group's share price had already reached a high point, and who wouldn't worry about being the one to take advantage?
Instead, many Thomson Group shareholders began selling their shares to lock in profits. By the end of October, Thomson Group's share price had fallen by over 20% from its peak of twenty days prior.
But the situation didn't end there. On October 31st, Halloween, the UK Competition and Markets Authority (CMA) announced that it was vetoing Thomson Group's acquisition of Reuters, citing concerns that it would affect fair competition in the industry.