BlackRock to buy BGI; New firm to grow faster as an independent

Officials at the newly acquired Barclays Global Investors (BGI) are making a bet that coming out fro...

Officials at the newly acquired Barclays Global Investors (BGI) are making a bet that coming out from the Barclays Capital umbrella and becoming an independent firm will help assets grow quicker.

BlackRock and Barclays yesterday announced BlackRock had agreed to buy BGI in a cash and shares deal worth $13.5bn.

The deal - which includes BGI's exchange traded fund platform iShares - will see Barclays take a 19.9% stake in the combined firm, which will be renamed BlackRock Global Investors.

The combined firm will have assets under management in excess of $2.7trn and a combined workforce of 9,000 employees.

Despite already being the largest asset manager in the world, officials said the new combined unit will grow at a faster clip than had BGI remained a part of Barclays.

Barclays president Bob Diamond told reporters that even before this deal, over 50% of the 50 largest asset management firms in the world are independently owned, up from 30% previously.

He adds: "The rate of growth in assets under management has been double for the independents versus those that are bank owned."

He also says US ERISA and 40 Act regulations hampered growth at both BGI and Barclays, but that the regulatory hurdles will be removed once the two firms are independent of each other.

Under the terms of the deal, BlackRock will buy BGI in exchange for 37.8 million shares and $6.6bn of cash.

BGI chief executive Blake Grossman will serve as a vice chairman of the combined firm, head of Scientific Investing, and a member of the office of the chairman. Barclays chief executive John Varley and Diamond will join the combined firm's board of directors.

BlackRock chairman and chief executive Laurence Fink says the deal would allow the firm to increase its focus on asset allocation, multi-asset class solutions, fiduciary management, risk management and advisory services.

He says: "This is where we believe more and more clients are coming to us and searching for more solutions."

Managing partner at Silver Lane Advisors, an M&A advisory firm, Elizabeth Nesvold says the deal transforms both firms into truly global players in terms of product offerings.

She says: "They can now wear that foam #1 finger."

But challenges remain. Nesvold integrating two different cultures is always a challenge with asset management firms."

Diamond says the cultures and values of the two firms were "strongly aligned".

He says: "Both of our organisations place great emphasis on teamwork, excellence and integrity. The two firms have worked together for over seven years through BlackRock Solutions, where BGI's U.S. fixed income group is already a client. This relationship will considerably ease integration as we go forward."

BlackRock saysthe cash portion of the purchase price will be funded through a mix of existing cash, committed debt facilities and proceeds from the issuance of equity securities to a group of institutional investors.

BlackRock has received commitments from a group of institutional investors to purchase 19.9 million shares at the closing of the transaction for a total of $2.8bn.

A group of banks, including Barclays, Citi and Credit Suisse, has committed to provide BlackRock with a new 364-day revolving credit facility of up to $2bn - to be drawn at closing to the extent necessary and repaid during the term from the proceeds of any capital raising transactions.

CVC Capital Partners - the firm that had agreed to buy BGI's exchange traded funds business, iShares in April - has been given five days to table a better offer. Diamond says Barclays would no longer consider splitting iShares from BGI.