BlackRock to buy asset management arm of Barclays

LOS ANGELES — After weeks of speculation, U.S. investment manager BlackRock Inc. said Thursday it will purchase the asset management arm of British investment bank Barclays PLC, including its iShares division, for $13.5 billion in cash and stock.

Barclays Global Investors is the world’s largest asset manager with more than 3,000 institutional clients and approximately $1.5 trillion of assets under management as of Dec. 31. New York-based BlackRock, which will pay $6.6 billion in cash plus 37.8 million shares currently worth about $6.9 billion, said its takeover of BGI will create a firm with combined assets under management of more than $2.7 trillion.

BlackRock said the deal will allow the company to better tailor portfolios for retail investors by marrying its global mutual funds to the iShares’ ETF platform.

Barclays had agreed to sell San Francisco-based iShares, the exchange-traded fund which generates half the profits within BGI despite managing less than a quarter of the operation’s assets, to CVC Capital Partners for $4.4 billion. But under a “go shop” clause in the agreement, CVC has five business days to match or top BlackRock’s bid for the whole Barclays unit or walk away with a $175 million breakup fee.

Blake Grossman, CEO of Barclays Global Investors, 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 President Bob Diamond will join BlackRock’s board.

At closing — expected in the fourth quarter — BlackRock will have more than 9,000 employees in 24 countries.

Barclays’ sale of BGI is part of its effort to raise capital after it declined to take part in a multibillion pound bailout of the struggling British banking system last year alongside Lloyds Group and Royal Bank of Scotland. The bank instead raised billions from Middle Eastern investors and agreed to sell the iShares fund management business.

Barclays also decided, after passing a “stress test” of its assets by regulators, not to participate in the government’s Asset Protection Scheme to underwrite potential losses on toxic assets.

The deal gives Barclays a 19.9 percent stake in the new BlackRock Global Investors, representing a 4.9 percent voting interest. There will be certain restrictions on Barclays buying or selling BlackRock shares, but the British bank will have the right to maintain its ownership percentage if BlackRock issues additional shares in the future.

BlackRock said it will fund the cash portion of the purchase price through a mix of existing cash, debt facilities and proceeds from issuing 19.9 million shares to a group of institutional investors for $2.8 billion.

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 $2 billion, which would be repaid by any capital raising efforts and refinanced with the proceeds of term debt financings.

The transaction is subject to approval by Barclays shareholders and regulators.

Citi and Credit Suisse served as lead financial advisers to BlackRock. Banc of America Merrill Lynch Securities, Morgan Stanley, and Perella Weinberg Partners provided additional financial advisory support. Skadden, Arps, Slate, Meagher & Flom served as legal counsel.

Shares of BlackRock closed earlier up $4.08, or 2.3 percent, at $182.60. Barclays shares ended up $1.25, or 6.7 percent, at $19.90 and added 35 cents in aftermarket electronic trading.