BlackRock’s $13.5billion acquisition of BGI from Barclays has created the world’s largest investment manager, with roughly $2.8trillion of assets under management (AUM). This is greater than the amount overseen by the Fed!

BlackRock will pay $6.6 billion in cash and the rest in stock for BGI.  Barclays will hold a 19.9 percent stake in the combined company. Financing will include $2.8 billion from the sale of equity to institutional investors and as much as $2 billion in loans from Barclays and other banks.

For Barclays, the money will go toward replenishing its capital base and helping it digest the purchase of Lehman Brothers. For BlackRock, this was much more of a strategic, rather than a financial acquisition. BGI’s strength is index or passive investing, which is based on the belief that no one can beat a stock or bond index over time so you might as well replicate the index at the lowest cost possible. BlackRock will add about $1 trillion in investments that track market indexes, which are attracting clients at the expense of funds whose managers choose securities to buy and sell. The deal would give BlackRock, long known as a top bond manager for institutional investors, the opportunity to expand in ETFs and other indexing strategies.

As mentioned above, this transaction really makes sense strategically, as the two parts coming together complement each other well. BlackRock mainly manages bonds, money market funds and other fixed-income investments, whereas BGI is dominant in stocks. BlackRock is primarily an active manager, picking individual securities, rather than a passive one like BGI. BGI has a somewhat bigger presence outside the United States than BlackRock, which is especially interested in BGI’s Latin American presence.

This past April, Barclays agreed to sell BGI’s IShares exchange-traded fund unit to London-based CVC Capital Partners Ltd. for $4.4 billion. Barclays had until June 18 to find a better deal for IShares or all of BGI, which analysts last month valued at more than $10 billion. CVC, which has until June 18 to match BlackRock’s offer, is unlikely to submit a higher bid, said a person familiar with the talks. CVC will instead receive a $175 million breakup fee.

Here is a great article and a video on Bloomberg that really goes into the details of this deal.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNAheSGYWi_s

Please feel free to post comments on the deal, and why you think it will prove to be successfull/unsuccessfull.