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By Jason Simpkins
BlackRock Inc. (NYSE: BLK) yesterday (Friday) announced that it will pay $13.5 billion for Barclays Global Investors (BGI), Barclays PLC's (NYSE ADR: BCS) investment unit. The deal makes BlackRock the largest money manager in the world with a combined market value of about $34 billion.
The purchase will include $6.6 billion in cash and the rest in shares. Barclays will own nearly 20% of BlackRock as a result of the deal. Bank of America Corp. (NYSE: BAC), which acquired a 49% stake in BlackRock through its purchase of Merrill Lynch, will see its stake in the company dwindle to just under 35%.
The acquisition of BGI will help BlackRock make the transition from a specialized fixed-income fund to a diversified asset manager by building on the company's $8.5 billion takeover of Merrill Lynch's investment unit in 2006. That purchase let BlackRock -a bond fund manager at the time – add stock funds.
The addition of BGI, and its iShares exchange-traded fund (ETF) unit, will give BlackRock 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, Bloomberg News reported. That makes BlackRock the first top-ranked firm to attempt to combine both types of businesses.
"This will bring the greatest sweep of products to our clients," BlackRock Chairman and Chief Executive Officer Laurence Fink told Bloomberg in a telephone interview. "This transaction is transformational."
Barclays in April agreed to sell BGI's iShares business to London-based CVC Capital Partners Ltd. for $4.4 billion. However, Barclays was given until June 18 to find a better deal for iShares or the whole of BGI. CVC still has until June 18 to match BlackRock's offer, or else accept a $175 million breakup fee.
BlackRock plans to finance the deal with a combination of debt, including $2 billion from Barclays and $2.8 billion from several sovereign wealth funds (SWFs). A person familiar with the deal told the Financial Times that those investors would include the Kuwait Investment Authority, Government of Singapore Investment Corp., and China Investment Corp.
Barclays said that it would use the $8.8 billion net gain from the deal to bolster its capital strength. The bank will boost its equity tier 1 ratio by 163 basis points and its core tier 1 capital ratio by 150 basis points.
News and Related Story Links:
BLACKROCK AGREES TO ACQUIRE BARCLAYS GLOBAL INVESTORS, INCLUDING ITS MARKET-LEADING iSHARES BUSINESS
BlackRock to buy BGI for $13.5bn