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UPDATE 5-Barclays in talks to sell BGI, seen worth $10 bln
May 15, 2009 / 7:43 AM / 9 years ago

UPDATE 5-Barclays in talks to sell BGI, seen worth $10 bln

* UK bank confirms gets interest for all of BGI

* Deal could be worth about $10 bln -source

* BlackRock, BNY Mellon interested suitors -source

* Barclays shares jump 5.8 pct (Adds details, updates shares)

By Steve Slater and Joseph A. Giannone

LONDON/NEW YORK, May 15 (Reuters) - Barclays Plc (BARC.L) is in talks to sell its prized asset management arm after the auction of its iShares unit sparked interest in more parts of the British bank.

The bank said it has received “unsolicited interest” for San Francisco-based Barclays Global Investors (BGI), the world’s biggest fund manager. A deal would likely be worth $10 billion or more, people familiar with the matter said.

Interested bidders for BGI, renowned for the number of PhDs among its staff, include U.S. money manager BlackRock (BLK.N) and U.S. bank Bank of New York Mellon (BK.N), a person familiar with the matter said.

BlackRock and BNY Mellon declined to comment.

The interest for BGI emerged as Barclays sought more offers for iShares, the exchange-traded funds unit that is part of BGI. The bank said it has received “a number of expressions of interest” for iShares before a June 18 deadline for bids.

Barclays shares closed up 5.8 percent at 267.75 pence after hitting 278.5p, to value the bank at about 23 billion pounds ($34.8 billion). The shares have soared fivefold since January.

“If a sale of BGI as a whole were on the table at the price north of $10 billion I would regard that as a good price in this market,” said Ian Gordon, analyst at Exane BNP Paribas.

“I don’t think Barclays’ core objective is to sell BGI, but if they are offered a price for any business that is accretive to shareholders they are duty-bound to look at it.”

Selling BGI would derail a separate sale of iShares, which Barclays has earlier agreed to sell to buyout firm CVC Capital Partners for 3 billion pounds ($4.5 billion).

The talks over BGI, which likes to boast about the work done by its research lab, have emerged as Barclays attempts to lure more offers for iShares.

WINDFALL FOR STAFF

BGI is staffed by academics covering a wide range of disciplines from economics to engineering, physics and computer science, attracting graduates from the nearby University of California at Berkeley. [ID:nLF960631]

Senior management and other staff at BGI would reap a windfall if the business was sold, due to a lucrative equity ownership plan (EOP) dating back to 2000, that could leave them owning 10.3 percent of the business. Bob Diamond, president of Barclays and head of BGI, was already due to receive 4.7 million pounds in cash under the agreed iShares sale.

BGI has 1.04 trillion pounds in assets under management, including 226 billion at iShares.

Its passive management business, funded by long-term “sticky” institutional money, accounts for over 70 percent of the total and is likely to be attractive to bidders at a time when many asset managers have seen significant outflows.

An offer of about 6.5 billion pounds ($9.8 billion) for BGI would represent about 10 times last year’s earnings before interest, tax, depreciation and amortisation (EBITDA) of 673 million pounds, just under the 10.1 times EBITDA valuation on CVC’s bid for iShares.

A sale of BGI would further boost Barclays’ capital. Its core Tier 1 ratio will rise to 7.2 percent under the planned iShares sale, and an 800 million pound gain on a bond exchange on Thursday will add another 18 basis points. Selling BGI would lift the ratio to nearly 8 percent, analysts estimated.

It could also help fund the build out of investment bank arm Barclays Capital, which is expanding in Europe and Asia after last year’s purchase of Lehman Brothers’ U.S. operation.

Barclays has received interest from both trade and private equity buyers for iShares, as it seeks a higher offer allowed by a “go shop” clause in the CVC deal. [ID:nLB212280]

Private equity firm BC Partners [BCPRT.UL] has bid 3.5 billion pounds for the business, according to a newspaper report this month, while Apax Partners and Hellman & Friedman are seen as less likely to be still in the race.

Barclays owes CVC a $175 million break-up fee if it sells iShares to another bidder.

BGI is also included in the “go shop” clause, giving potential suitors a closer look, because it shares some businesses with iShares, such as its stock lending business. ($1=.6611 pounds) (Additional reporting by Claire Milhench, Myles Neligan and Victoria Howley in London; editing by Will Waterman and Rupert Winchester)

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