BlackRock Close To US$ 13 Billion BGI Deal?

According to press reports at the weekend, BlackRock Inc. is closing in on a deal to acquire Barclays Global Investors (“BGI”), the parent company of iShares, in a transaction worth up to US$13 billion.

Barclays is expected to reach a decision early this week on who will purchase its asset management division, the Financial Times reported.

The transaction is likely to be a complex one, with Barclays expected to acquire a stake of 20% in BlackRock, BlackRock likely to rely on financing from Middle Eastern sovereign wealth funds, and Barclays’ president, Bob Diamond, rumoured to be joining the board of the US group. Larry Fink, BlackRock’s founder and chief executive, met the Kuwait and Qatar Investment Authorities last week to seek funding, according to the Financial Times.

The deal, if confirmed, would set a record for the acquisition of an asset management company, dwarfing the US$ 8.5 billion paid by BlackRock for Merrill Lynch’s fund arm in 2006. It would also trigger a payout of US$585 million for the 200 employees of BGI with stakes in the company, with Diamond set to receive around US$ 30 million.

Although weekend press reports suggested that a new deal is close to being reached, Barclays has another ten days until the June 18 deadline for seeking further bids for iShares and other related businesses. This was set as part of the US$ 4.2 billion May agreement to sell iShares to CVC Capital Partners. CVC will receive a US$ 175 million break fee if Barclays concludes a transaction with a third party, as now seems likely.

A BlackRock acquisition of BGI would mean intensifying competition in the fixed income ETF market, according to some observers. Last week, Pimco, BlackRock’s biggest rival initiated its ETF range with a 1-3 year US Treasury bond tracker, undercutting the equivalent iShares fund with a nine basis point annual fee.