BlackRock in Talks for iShares, BGI

by on June 8, 2009

Barclays Plc announced today that it is in advanced talks to sell Barclays Global Investors (BGI), with BlackRock (BLK) and Bank of New York Mellon (BK) both in the hunt to land the unit of the British bank. The purchase price for the deal is believed to be close to $12 billion. Barclays confirmed that it has received several bids for both BGI and iShares, so it is possible that additional suitors will emerge in the coming weeks.

In April of this year, Barclays agreed to sell iShares (which is a part of BGI) to private equity firm CVC for $4.4 billion. As part of the deal, however, a “go shop” clause permits Barclays to search for improved offers until June 18. With the deadline rapidly approaching, speculation over numerous potential acquirers has intensified. Fidelity, Vanguard, Northern Trust, and Charles Schwab have all been mentioned as potentially interested parties. Although Barclays would owe CVC a breakup fee of $175 million, the continued increase in popularity of iShares ETFs and abundance of interested buyers makes it increasingly likely that the fund family will end up with a strategic buyer for far more than CVC’s offer price.

BlackRock is likely to raise additional capital if a deal for BGI appears imminent. The UK’s Sunday Telegraph recently reported that Kuwait’s KIO, the Qatar Investment Authority, and Adia, the government investment arm of Abu Dhabi, are in talks to inject $3 billion of capital in exchange for a 12% stake. Such a move would dilute existing BlackRock shareholders, which include Bank of America (BAC, 49%) and PNC Financial Services Group (PNC, 33%).

iShares is the world’s largest family of ETFs, offering more than 180 funds across a broad range of asset classes and markets.