The Banking and Strategy Initiative

Chillin' out till it needs to be funded

$2.8 trillion leaves State Street far behind | Bloomberg

BlackRock Inc., started 21 years ago in a one-room office by former mortgage-bond trader Laurence Fink, agreed to buy Barclays Plc’s investment unit for $13.5 billion to become the world’s largest money manager.

BlackRock will pay $6.6 billion in cash and the rest in stock for Barclays Global Investors, the New York-based company said today in a statement. Barclays will hold a 19.9 percent stake in the combined company. Financing will include $2.8 billion from the sale of equity to institutional investors and as much as $2 billion in loans from Barclays and other banks.

The purchase, the biggest of a fund manager, creates a company overseeing $2.7 trillion in assets, more than the Federal Reserve. BlackRock will add about $1 trillion in investments that track market indexes, which are attracting clients at the expense of funds whose managers choose securities to buy and sell. It’s the first top-ranked firm to attempt to combine both types of businesses.

“This will bring the greatest sweep of products to our clients,” Fink, BlackRock’s chairman and chief executive officer, said in a telephone interview. “This transaction is transformational.”

Barclays, the U.K.’s third-largest bank, agreed in April to sell BGI’s IShares exchange-traded fund unit to London-based CVC Capital Partners Ltd. for $4.4 billion. The bank, which is seeking to raise capital to replenish loan losses, had until June 18 to find a better deal for IShares or all of BGI, which analysts last month valued at more than $10 billion.

Combined Value

The private-equity firm, which has until June 18 to match BlackRock’s offer, is unlikely to submit a higher bid, said a person familiar with the talks, who declined to be identified. CVC will instead receive a $175 million breakup fee. Officials at the firm declined to comment today. Barclays can no longer solicit bids for San Francisco-based BGI from other buyers.

The combined company will have a market value of more than $34 billion, Fink, 56, said on a conference call. The deal will add to per-share cash earnings by 10 percent in 2010, he said.

“It looks like a good price, a strong gain and it removes the rights issue prospect for Barclays,” said Simon Maughan, an analyst at MF Global Securities in London who has a “buy” rating on Barclays. “It will allow Barclays to redeploy capital in Barclays Capital for at least as good a return as BGI.”

Barclays will have a net gain of $8.8 billion from the sale, which will increase its core Tier 1 capital ratio, a measure of financial strength, by 150 basis points to 8 percent as of Dec. 31, 2008, the bank said in a statement.

via World’s largest money manager


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