Block Dealing After Dark

Francesca Luzuriaga of Mattel Inc. wanted to sell $73 million of the company’s stock, and she wanted to do it quickly and easily.

As chief financial officer of the El Segundo toy maker, Luzuriaga already had her hands full with Mattel’s $775-million purchase of Tyco Toys Inc. and didn’t want to spend a lot of time and energy on what was for Mattel a relatively small sale. She called Daniel Ewell, managing director of Morgan Stanley & Co. in Los Angeles, who assured her the Mattel shares could be sold--within 24 hours.

Through a technique known as overnight “block trading,” Morgan and its co-manager, First Boston Corp., bought the shares at a small discount. They then began selling the stock to large international investors at a slightly higher price on March 21 just after the New York Stock Exchange closed.

Such overnight block trading protected Mattel from exposure to market swings. Morgan sold the stock at $24.25 a share, cheaper than Mattel’s previous day’s close of $24.50 a share.

“The pricing, the ease of execution--we got just what we wanted,” Luzuriaga said.

Block trading is nothing new in the capital markets. But the number of such mega deals, which typically involve a block of at least 10,000 shares, is on the rise lately. The roaring bull market and increasing demand of large buyers make selling such large blocks of stocks easier.

In fact, this year is promising to be a record year for block trades, although the deals are difficult to track since many are done after market close, according to data from Securities Data Co. in New Jersey.

“These types of deals are being used by companies that need to move on the dime,” said Scott Simpprelle, head of U.S. equity capital markets for Morgan in New York and who completed the Mattel deal. “They can be done quickly, and a company is not subject to the daily movement of the stock market--so you get both price certainty and speed.”

Since February, Morgan has completed five overnight block trades, three for California-based companies. The most recent was $213 million of shares in McKesson Corp., the San Francisco-based distributor of pharmaceutical and health-care products. In February, Morgan sold $143 million in shares of Rite-Aid Corp. for Leonard Green & Partners in Los Angeles.

In the largest deal so far for a single underwriting firm, Goldman Sachs & Co. recently sold a block of $2 billion in British Petroleum shares for the government of Kuwait. In another large deal in May, Merrill Lynch & Co. sold a 30-million share block of Time Warner Inc. stock for $1.4 billion, the third-largest block trade in history.

“This is a manifestation of the tremendous liquidity in the market right now,” said Ewell, managing director of Morgan Stanley.

Block trading can be done during market hours. But increasingly such trading is taking place after markets close to take advantage of eager Asian and European buyers. In fact, more trading in general is occurring after markets close, with millions of shares being routinely traded at night, especially on the Internet.

Debora Vrana can be reached via e-mail at [email protected] or by fax at (213) 237-7837.