Potential BGI sale trumps buy-out bid for iShares

LONDON Fri May 22, 2009 2:06pm EDT

A pedestrian passes a branch of Barclays bank in Kensington, London February 9, 2009. REUTERS/Andrew Winning

A pedestrian passes a branch of Barclays bank in Kensington, London February 9, 2009.

Credit: Reuters/Andrew Winning

Related Topics

LONDON (Reuters) - British bank Barclays has sidelined private equity houses bidding for iShares, its exchange-traded fund unit, and is looking to sell its entire asset management arm instead if offers approach $12 billion.

U.S. money manager BlackRock and Bank of New York Mellon are among the interested bidders for Barclays Global Investors (BGI), the world's biggest asset manager, people familiar with the matter said.

They know it's now or never. The iShares unit is one of the most attractive parts of San Francisco-based BGI, and it will be sold either separately or as part of a bigger deal by June 18.

"Barclays is trying to boost its capital base, and if it can sell all of BGI at the right price, rather than just iShares, that is better," a person with direct knowledge of the situation said, asking not to be named.

Private equity firm BC Partners has stopped working on its bid for iShares now that Barclays seemed to want to sell all of BGI, people familiar with the situation said on Friday, though it may decide to come back later.

Barclays agreed to sell iShares to buy-out house CVC for 3 billion pounds ($4.74 billion) in April, but is allowed to hunt for higher offers under the terms of a "go shop" clause.

Barclays, CVC and BC Partners declined to comment.

Other private equity firms Apax and Hellman and Friedman, which had been bidding for iShares, walked away after the deal with CVC was announced, pursuing their bids no further, sources familiar with the situation said.

SAVVY DEAL

It may be no coincidence that the go-shop clause is said to have been the brainchild of key Barclays dealmaker Roger Jenkins, and any deal that Barclays strikes to sell BGI in its entirety will be similarly smart and leave the bank plenty of leeway.

Jenkins is head of its investment banking and investment management business in the Mideast, and helped to get investors from Abu Dhabi and Qatar to pump billions of pounds into Barclays last year.

Under the iShares deal, Barclays will retain a 20 percent stake, giving it exposure to future gains.

It could strike a similar deal for BGI, or craft an alliance to achieve some synergies with its Barclays Capital, Barclays Wealth or other parts of the group.

A deal for BGI is likely to come down to price. CVC agreed to pay 10.1 times last year's core earnings for iShares. BGI is faster growing, but a similar multiple would put a 6.8 billion pound ($10.7 billion) price tag on it.

That puts it virtually out of reach of private equity bidders, unless they team up with strategic players.

"The size of the equity cheque would be too much for private equity (players), even if a few firms teamed up," a banking source said, asking not to be named.

CVC has the right to match any rival bids for iShares -- or all of BGI -- and the rich $175 million break fee would be a decent consolation. But bankers say it is in for the kill and wants to deploy assets on iShares.

With the iShares sale guaranteed, at a big enough price to keep regulators happy, Barclays could hold out for more cash, particularly now that markets have recovered.

If the BGI talks stall, the sale of iShares could reignite in the next four weeks. CVC and BC Partners would then be center stage again. But for now, they are confined to the wings.

(Additional reporting by Douwe Miedema and Simon Meads, editing by Will Waterman)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.