BlackRock to buy BGI in $13.5bn deal
London, June 13, 2009
BlackRock, a global investment management and advisory company, has snapped up Barclays Global Investors (BGI) for $13.5 billion in a deal creating the world's largest money manager.
BGI is an investment management subsidiary of UK-based Barclays Bank.
The combined company, to be called BlackRock Global Investors, will have roughly $2.8 trillion of assets under management, more than double BlackRock's current size, said a report in our sister publication, the Gulf Daily News.
Barclays, Britain's second-biggest bank, will gain much-needed capital from the cash-and-stock deal.
BlackRock, founded 20 years ago as a bond investment firm, has managed to sidestep the worst of the credit crunch, giving chief executive Laurence Fink a reputation as one of the shrewdest asset managers on Wall Street.
The US government selected BlackRock to manage troubled assets from Bear Stearns and American International Group.
The deal gives BlackRock exposure to exchange-traded funds, a product that has grown fast because it allows investors to buy assets easily which otherwise might be difficult to acquire, such as precious metals or foreign stocks.
'Exchange-traded funds have been a growth area in an industry that's struggling for growth opportunities,' said Ralph Cole, who helps manage $2.2 billion at Ferguson Wellman Capital Management in Portland, Oregon.
New York-based BlackRock grew from a one-room investment firm to the largest publicly traded asset manager in the US, and now the world, through a series of acquisitions. In 2006, it bought Merrill Lynch asset management business in a deal valued around $8.6 billion.
BlackRock is paying $6.6 billion in cash and the rest in stock. It is raising $2.8 billion from the sale of 19.9 million shares to a group of institutional investors.
BlackRock did not identify them, but people familiar with the matter expected Middle East sovereign wealth funds to be among them.
Barclays shares fell 4.1 per cent to close at 292 pence, on concerns that the deal will leave the company more reliant on investment banking, which generates less-stable earnings.
'This (BGI) was always a core part of the business until recently but the reality is they need as much capital as possible for the core banking and investment banking business, and they've been able to get a very good price for the asset,' said Colin Morton at Rensburg Fund Management, which owns Barclays shares.
But the deal also helps Barclays by shoring up its capital base. The bank said yesterday that it was recording a net gain of $8.8 billion on the assets, which should lift its core Tier 1 capital adequacy ratio by 1.5 percentage points to around 8 per cent.
Barclays refused aid from the British government last year as the financial crisis engulfed the industry, and sold shares to Abu Dhabi and Qatar instead.
Banks are under increasing pressure from regulators to keep asset management and investment banking businesses separate, while clients are keen to work with independent fund managers. – TradeArabia News Service