Friday, June 12, 2009
Mayur Pahilajani - AHN News Writer New York, NY (AHN) - BlackRock Inc. (NYSE: BLK) will create the world's largest money manager with the acquisition of Barclays Global Investors asset management unit; the merged company will have $2.8 trillion (1.9 trillion GBP) in assets, which is more than the U.S. Federal Reserve.
BlackRock purchased the unit from Barclays PLC (NYSE: BCS), the Britain's third largest lender, for a price of $13.5 billion (8.2 billion pounds), ending several weeks of speculation over the fate of Barclays Global Investors (BGI) business, which includes exchange-traded funds division iShare.
The latest deal potentially ends its previous arrangement with CVC Capital Partners Ltd., which proposed to takeover iShares unit for 3 billion GBP ($4.4 billion USD).
Under today's agreement, Barclays will hold a 19.9 percent stake, or 37.784 million shares, in the combined U.S.-based company. The New York-based company will pay $6.6 billion (4.0 billion GBP) in cash and the remaining in stock for the acquired assets.
At the closing of this transaction, which is expected to occur in the fourth quarter, the firms will raise $2.8 billion in funds by the sale of shares to institutional investors. In addition, the financing will include up to $2 billion in loans from Barclays and other banks.
At closing, BlackRock will have more than 9,000 employees in 24 countries and have a "meaningful presence" in all major markets around the world, the company said. The addition of the BGI San Francisco office will substantially expand the firm's U.S. footprint.
BlackRock, which had asset under management at $1.283 trillion as of March 31, is likely to benefit from the BGI deal as it will bolster the firm's asset management through a strong exchange-traded funds division.
"The combination of active and passive investment products will be unsurpassed, and will enhance our ability to offer comprehensive solutions and tailored portfolios to institutional and retail clients," BlackRock Chairman and CEO Laurence D. Fink said in a statement.
He added, "The thought leadership and intellectual capital of the combined firm ensure we will remain at the forefront of addressing key investment issues and trends that have emerged over the past decade and are now accelerating dramatically, including globalization of capital markets, a greater focus on asset allocation, multi-asset class solutions, fiduciary management, risk management and advisory services."
The transaction is subject to necessary shareholder and regulatory approvals and other customary closing conditions, with the initial integration of both firms' operations shortly thereafter.
If the proposed transaction proceeds, Barclays would expect to realize a net gain on sale of $8.8 billion (5.3 billion pounds) based on the closing price of BlackRock common stock of $182.60 on June 11, the net assets of the BGI business subject to disposal as at March 31 and transaction costs.
Barclays said that this gain would add an estimated 163bps to Equity Tier 1 and 150bps to Core Tier 1 capital ratios as at December 31, 2008.
"The combination of BGI and BlackRock represents a unique strategic opportunity to bring together the complementary capabilities and geographical footprints of two leading asset managers," Barclays' CEO John Varley said in a separate statement today.
He added, "The asset management industry is fragmented; in such circumstances the economies of scale created by a combination with this breadth of business offer considerable growth to shareholders over time. Meanwhile, of course, the capital ratios of Barclays would be further increased by this transaction."
But the market analysts were expecting that Bank of New York Mellon Corp. (NYSE: BK) or other bidders would challenge BlackRock's offer for BGI.
The bank's Barclays Global Investors division has 1.04 trillion pounds ($1.6 trillion) of funds under management and operates in 15 countries.
If CVC does not match the BlackRock's offer before June 18 and Barclays shareholders vote against the sale of BGI to BlackRock at the proposed general meeting, termination fees $45 million (27.2 million pounds) would be payable and will reimburse BlackRock for its reasonable expenses in connection with the transaction.
Proceeds from the BGI transaction will go to cover most of $18.6 billion of credit losses and writedowns, which Barclays has been seeking to raise in cash to shore up its financial statements.
Under the "go shop" terms, CVC had agreed to allow Barclays to look for an alternative bid until mid-June, but the lender would have to pay $175 million (120 million pounds) break-up fee to CVC to choose another bidder.
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