Barclays to merge fund mgmt arm with BlackRock

British banking giant Barclays is finanlising a deal to merge its $1-trillion fund management arm BGI with US-based BlackRock, a move that will create one of the world's major financial powerhouses, media report says.     

The complex transaction, which will value Barclays Global Investors (BGI) at about $13 billion, could be announced as early as this week, the Telegraph said, adding that BlackRock is expected to pay for BGI through a combination of cash and shares, and the final price has yet to be agreed.     

Quoting people close to the talks, the newspaper said details of the transaction are still being negotiated by the two sides, but it is likely to involve Barclays taking an economic interest in the combined fund management group of as much as 20 per cent.     

Barclays is likely to gain as many as two seats on the BlackRock board, one of which is almost certain to be occupied by Bob Diamond, the president of Barclays and the chief executive of Barclays Capital.     

It is expected that BlackRock will issue new equity to help pay for BGI, although the structure and terms of such a move are not yet clear, the Telegraph added.     

The talks about a takeover of BGI kicked off several weeks ago, and follow a process initiated by Barclays in March to sell iShares, the arm of BGI which specialises in exchange-traded funds.

Telegraph further said that having secured a $4.2 billion offer for iShares from private equity group CVC Capital Partners, Barclays retained the right to solicit higher offers for it and for other related businesses.     

"By gaining a sizeable minority stake in BlackRock, Barclays should allay concerns among some investors that by disposing of BGI, it would be abandoning its exposure to one of its most profitable divisions," the report said.     

The takeover of BGI by BlackRock will also see one or more Gulf-based investors injecting money into the New York-based company to help finance the deal.     

"The Qatar Investment Authority and bodies from Abu Dhabi and Kuwait are among the entities in discussions about providing about $3 billion to BlackRock in exchange for a shareholding of about 12 per cent in the US-based money manager," the Telegraph added.     

Interestingly, the involvement of the Middle Eastern investors comes just days after a key Gulf backer of Barclays’ multi-billion pound fund-raising last year announced plans to offload almost his entire stake in the bank.     

"If the deal does go through, John Varley, Barclays' chief executive, is expected to promote it as a unique strategic opportunity which has significant potential revenue synergies," the Telegraph added.