US investment manager BlackRock Inc has agreed to acquire the asset management arm of British investment bank Barclays Plc for $13.5 billion in cash and stock, to become the world's largest asset manager.
Barclays, which had turned down the UK government's bail out money to recapitalise banks in favour of a Mid East investment from Sheikh Mansour bin Zayed al-Nahyan, member of the Abu Dhabi ruling family, had been in talks with private equity investors including CVC Capita and BlackRock for the sale of its asset management business, Barclays Global Investors (See: Barclays in talks with BlackRock to sell BGI for approximately $13 billion).
The board of directors of Barclays Global has accepted a binding offer of $13.5 billion (£8.2 billion) by BlackRock.
New York-based BlackRock will pay $6.6 billion in cash and 37.8 million shares currently worth about $6.9 billion, giving it an economic interest of approximately 19.9 per cent of the enlarged BlackRock Group, which would be renamed BlackRock Global Investors said
Barclays Global Investors had approximately $1.5 trillion of assets under management as of 31 December and 3,000 institutional clients. The takeover will create a firm with combined assets under management of more than $2.7 trillion and a market capitalisation of more than $34 billion.
Barclays said the BlackRock offer is superior to the transaction agreed with the CVC Capital Partners Group firm Blue Sparkle LP and unless Barclays receives a matching offer from CVC by the end of Thursday 18 June 2009, the Barclays board will accept the BlackRock offer and recommend it to Barclays shareholders for approval at a general meeting to be called for the purpose.
BlackRock Global Investors would have pro-forma assets under management of approximately $2.8 trillion (£1.9 trillion) as of 31 December 2008 and extensive capabilities across investment strategies and products, including fixed income, equity, cash, exchange traded funds (ETFs) and client solutions.
As part of the ongoing relationship between Barclays and BlackRock, John Varley, Barclays Group chief executive, and Robert E Diamond Jr, Barclays Group president and chief executive of investment banking and investment management, would be nominated to the board of directors of BlackRock.
The consideration of $13.5 billion (£8.2 billion) represents a multiple of 11.9 and 8.3 times BGI's 2008 EBITDA as published and as sold, respectively. It also represents 28 per cent of the current Barclays market capitalisation, substantially above the 15 per cent contribution by the BGI business subject to disposal to Barclays profit before tax for the year ended 31 December 2008.
If the proposed transaction proceeds, Barclays would expect to realise a net gain on sale of $8.8 billion (£5.3 billion) based on the closing price of BlackRock common stock of $182.60 on 11 June 2009, the net assets of the BGI business subject to disposal as at 31 March 2009 and transaction costs. This would add an estimated 16.3 per cent to its Tier 1 equity and 15 per cent to Tier 1 core capital ratios as of 31 December 2008.
Together with the conversion of the mandatorily convertible notes issued in November 2008, Barclays would have reported an estimated Tier 1 equity ratio of 8.3 per cent and Core Tier 1 ratio of 8.0 per cent as of 31 December 2008 on a pro-forma basis.
''The combination of BGI and BlackRock represents a unique strategic opportunity to bring together the complementary capabilities and geographical footprints of two leading asset managers. The asset management industry is fragmented; in such circumstances the
economies of scale created by a combination with this breadth of business offer considerable growth to shareholders over time. Meanwhile, of course, the capital ratios of Barclays would be further increased by this transaction,'', John Varley said commenting on the BlackRock offer.
''Our strategy has focused on the convergence of investment banking and investment management with great success. However, the asset management industry is moving increasingly towards independent asset managers, driven by growing regulation of the relationship between investment banking and investment management and intensified by the significant consolidation within each industry,'' said Robert E Diamond Jr.
It would be Barclays intention to retain this economic interest in BlackRock as a core part of its strategy going forward. BlackRock will fund the cash portion of the consideration partly from existing cash and debt facilities. A further $2.8 billion (£1.7 billion) will be sought from equity investors. The proposed transaction with Barclays is not conditional on BlackRock's equity capital raising.
Barclays would provide BlackRock with a 364-day, revolving credit facility of up to $2.0 billion (£1.2 billion) on market terms. Of this, $0.8 billion (£0.5 billion) has been committed by other banks who will be party to the facility. The facility would be drawn at completion to the extent necessary and repaid during the term from the proceeds of equity or debt issuance by BlackRock. The facility would add up to $600 million (£363 million) of risk weighted assets to the Barclays balance sheet net of the amount committed by other banks.
As part of the proposed transaction, Barclays would enter into a stockholder agreement with BlackRock which would govern certain aspects of the Barclays ownership interest in BlackRock and provide Barclays with certain rights, including pre-emptive rights. The terms of this agreement would provide, amongst other things, that Barclays would have the right to nominate two directors to the board of directors of BlackRock and that Barclays would vote its shares in accordance with the recommendations of the BlackRock Board.
For the first year post completion Barclays would not be permitted to sell down any of its economic interest in BlackRock without BlackRock's consent and for the second year it would not be permitted to sell down more than half of its economic interest in BlackRock without BlackRock's consent. BlackRock's consent would, in each case, not be unreasonably withheld.
The consideration for the proposed transaction would be subject to a price adjustment mechanism based on changes in BGI's annualised run-rate revenues between 30 April 2009 and completion, excluding the impact of market movements. The purchase price adjustment would be subject to a cap of $1.4 billion (£0.8 billion). The consideration for the transaction would also be adjusted for agreed changes in working capital at completion. Barclays would provide BlackRock with customary warranties and indemnities in connection with the disposal.
Barclays would also continue to provide certain cash support following completion of the disposal in respect of certain BGI funds and indemnities in respect of BGI's fully collateralised securities lending activities.
Until such time as net proceeds are deployed as further capital in the business, the proposed transaction is expected to be dilutive to Barclays earnings, although it is also expected that such dilution would be partially offset through Barclays retained economic interest in and ongoing commercial relationship with BlackRock.
The proposed transaction is expected to realise significant value for Barclays shareholders; the consideration of $13.5 billion (£8.2 billion) represents a multiple of 11.9x and 8.3x BGI's 2008 EBITDA as published and as sold, respectively. It also represents 28 per cent of the current Barclays market capitalisation (based on the closing price of BlackRock common stock of $182.60 on 11 June 2009), substantially above the 15 per cent contribution by the BGI business subject to disposal to Barclays profit before tax for the year ended 31 December 2008.
The trading performance of Barclays through to the end of May 2009 has been generally consistent with the overall trends reported in the interim management statement.
As announced on 9 April 2009, under the terms of the CVC Transaction, Barclays had at least 45 business days after 15 April 2009 to solicit superior proposals for the sale of iShares and potentially other related businesses. The board of Barclays considers that the terms of the BlackRock offer represent a superior proposal when compared with the CVC Transaction.
Under the terms of the CVC Transaction, Barclays is able to accept a superior offer and terminate the CVC Transaction only after giving CVC the opportunity to match the superior offer. CVC now has until the end of Thursday 18 June 2009 to propose an alternative transaction. Should CVC propose an alternative transaction that Barclays considers causes the BlackRock Offer no longer to be superior, Barclays will continue a transaction with CVC, albeit on improved terms. Should CVC not propose such an alternative transaction, Barclays will pay a break fee and expenses of $175 million (£106 million) to CVC and terminate the CVC transaction.
As of 31 March 2009, BGI had more than 3,500 employees with offices in 15 countries worldwide. A number of employees are shareholders in Barclays Global Investors UK Holdings Limited, which is the main holding company for BGI. These shareholders purchased their shares through the BGI Equity Ownership Plan.
The EOP was approved by Barclays shareholders in 2000. Under the EOP rules, the sale of BGI would allow employees to exercise options held under the EOP. Option holders would have an opportunity to exercise all vested and unvested options. It is proposed that all outstanding shares held through the EOP would then be acquired by Barclays, extinguishing the minority interest in BGI Holdings. Assuming exercise of all in-the money options, the outstanding options under the EOP would represent approximately 4.7 per cent and, together with the EOP shares currently in issue, 9.0 per cent of the enlarged share capital.
Robert E Diamond Jr, who has been executive chairman of BGI since 2003, holds shares and options over shares in BGI Holdings. These interests were awarded before he was appointed to the board of Barclays in June 2005. As a BGI Holdings shareholder and option holder, he would receive net consideration of approximately $36 million (£22 million) before any applicable deductions. Diamond would have paid, over the period 2003-2009, $10.0 million (£6.0 million) to acquire his shares. Diamond, however, took no part in the consideration of the iShares transaction.
The employees working within BGI would be expected to transfer as part of the transaction and would include Blake Grossman, Chief Executive Officer of BGI.
The disposal of BGI requires Barclays shareholder approval by ordinary resolution which would be sought at a general meeting of Barclays.
Under New York Stock Exchange rules, the issuance of a portion of the preferred stock of BlackRock, beyond that already authorised, requires approval of BlackRock's stockholders. The PNC Financial Services Group, Inc. and Merrill Lynch & Co Inc, who together hold a majority of BlackRock stock, have consented to this and therefore stockholder approval is assured.
Under the BlackRock offer, completion of the sale of BGI is conditional upon approvals being obtained from Barclays shareholders, as well as regulatory approvals and other closing conditions.
Completion is further subject to BGI's run-rate revenues at completion being at least 75 per cent of the annualised run-rate as at 30 April 2009 excluding the impact of market movements.
Barclays Capital is acting as lead financial adviser to Barclays and Lazard & Co, Limited is acting as financial adviser to Barclays. JP Morgan Cazenove Limited is acting as broker and sponsor to Barclays. Clifford Chance LLP and Sullivan & Cromwell LLP are acting as legal advisers to Barclays.
John Varley, Barclays Group chief executive and Robert E Diamond Jr, Barclays group president, will host an an analysts' conference at 9.00 am (BST) today.
Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services with an extensive international presence in Europe, the USA, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 156,000 people. Barclays moves, lends, invests and protects money for 48 million customers and clients worldwide.
BGI is one of the world's largest asset managers and a leading global provider of investment management products and services with more than 3,000 institutional clients and $1.5 trillion of assets under management as at 31 December 2008. BGI is one of the global product leaders in exchange traded funds (iShares exchange traded funds) with over 360 funds globally across equities, fixed income and commodities which trade on 18 exchanges worldwide.