Barclays unit to be acquired by US firm

Bloomberg

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BlackRock, started 21 years ago in a one-room office by former mortgage-bond trader Laurence Fink, agreed to buy Barclays’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 Friday 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 an interview. "This transaction is transformational."

Barclays, Britain’s third-largest bank, agreed in April to sell BGI’s iShares exchange-traded fund unit to London-based CVC Capital Partners 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 San Francisco-based BGI, which analysts last month valued at more than $10 billion. The sale is scheduled to be completed by December.

The combined company will have a market capitalization of more than $34 billion, Fink said Friday in a conference call. The transaction will add to per-share cash earnings by 10 percent in 2010, Fink said.

Market capitalization
John Varley, Barclays’ CEO, and President Robert Diamond will join the board of the new company, to be called BlackRock Global Investors, according to the statement. Blake Grossman, CEO of the Barclays investment unit, will be vice chairman of BlackRock.

Barclays will have a 4.9 percent voting interest in the company, with restrictions on the sale or acquisition of shares. It will have the right to maintain its ownership percentage if BlackRock issues additional shares in the future.

Bank of America will see its stake in BlackRock drop to 34.2 percent from the 47 percent it held on March 31. Pittsburgh-based PNC Financial Services Group will own 24.6 percent, down from 32 percent.

Barclays, along with Citigroup and Credit Suisse, will provide BlackRock with a 364-day revolving credit line of as much as $2 billion. The credit would be drawn at closing as necessary and repaid from proceeds of any capital-raising transactions. BlackRock plans to refinance any draw-down under this facility with proceeds of term-debt financings.

BlackRock said a group of undisclosed investors agreed to buy 19.9 million new shares for about $140.70 each. That’s a 10 percent discount to the 10-day moving average of the stock price prior to the agreement, Fink said.

BlackRock, currently the No. 3 fund company, and Bank of New York Mellon were the main bidders for BGI and its $1.5 trillion of assets, the most in the industry.

BlackRock was able to win BGI partly because its stock price has risen 36 percent this year, compared with a gain of 2.2 percent by BNY Mellon. State Street Corp., which has $1.44 trillion in assets, mostly in index-based products, probably was hindered by antitrust concerns.

Private-equity firms like CVC Capital haven’t been able to finance a deal of this size since banks stopped lending for leveraged buyouts in mid-2007. The biggest LBO of a money manager was the $5.6 billion purchase of Nuveen Investments by Madison Dearborn Partners, which was announced in June 2007.Banks and insurance companies, once active buyers of asset-management firms, are selling those units as the global financial crisis has resulted in $1.48 trillion in writedowns and credit losses.