BlackRock said last night it will buy British bank Barclays’ investment arm BGI for $13.5 billion in a blockbuster deal that will create the world's biggest asset manager.
For BlackRock, a 21-year old company which relied heavily on acquisitions to grow from a one-room bond investment firm into the largest publicly traded US money manager, the deal will more than double assets to roughly $2.7 trillion.
It will also give New York-based BlackRock, well-known for working with governments and institutional clients, access to retail investors and the hugely popular exchange traded funds San Francisco-based Barclays Global Investors offers.
BGI, which has operations in 15 countries and ranks as Europe's largest hedge fund manager, will help expand BlackRock's reach around the world and into new products spanning actively and passively managed portfolios.
“This gives BlackRock a global footprint which is a substantial thing to have in these markets,” said Geoff Bobroff, who advises mutual fund companies as president of Bobroff Consulting.
For Barclays the deal will strengthen its balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry.
BlackRock will pay $6.6 billion in cash and the rest in stock to acquire BGI and Barclays' iShares unit, which had been promised to private equity firm CVC Capital Partners for $4.4 billion in April.
Barclays was allowed to keep shopping for a better deal until the middle of June and will owe CVC a $175 million break-up fee if it sells iShares to another bidder. CVC has until next week to come up with a counter offer.
“This is a transformational transaction” for the investment management industry Laurence Fink, BlackRock's chief executive officer, said on a hastily arranged conference call late last night.
Fink said BlackRock has received commitments from a global network of institutional investors and clients to purchase 19.9 million shares at the closing of the transaction for a total of $2.8 billion. He would not disclose the investors.
The combined companies' market capitalization will be roughly $34 billion, Fink said.
BlackRock's share price, which has climbed 36 per cent since January, shot up 11.5 percent this week to close at $182.60 yesterday as speculation about a possible deal heated up. Bank of New York Mellon was also said to have been interested in
buying BGI, but several people briefed on the deal said the company's more tepid stock price rise hurt its chances.
Together BlackRock and BGI - or BlackRock Global Investors as the new company will be called - will be the industry's single biggest player, zooming past rivals State Street Corp, which manages $1.4 trillion, and Fidelity Investments, which oversees $1.25 trillion.
The company will also outpace PIMCO, its chief fixed-income rival, which is building up a presence in exchange traded funds.
Reuters