BlackRock to Buy Barclays Unit for $13.5B

The acquisition of Barclays Global Investors will make New York-based BlackRock the world's biggest asset manager
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Updated from 12:28 a.m. EDT

BlackRock

(BLK) - Get Report

is now the world's biggest asset manager.

The New York-based company late Thursday said it reached a deal to acquire the asset management arm of

Barclays

(BCS) - Get Report

for $13.5 billion in cash and stock.

Under the terms of the deal, BlackRock will acquire Barclays Global Investors, which is active in both index funds and exchange-traded funds, for $6.6 billion in cash and 37.8 million shares, currently worth about $6.9 billion. The Barclays unit had about $1.5 trillion of assets under management as of Dec. 31 and 3,000 institutional clients.

The combined assets of the new firm, to be called BlackRock Global Investors, would be more than $2.7 trillion.

At the closing of the deal, which is expected in the fourth quarter, Barclays, the U.K. bank, will hold a 19.9% stake in BlackRock and a 4.9% voting interest.

BlackRock Global Investors will have more than 9,000 employees in 24 countries.

"We are incredibly excited about the potential to significantly expand the scale and scope of our work with investors throughout the world. The combination of active and passive investment products will be unsurpassed, and will enhance our ability to offer comprehensive solutions and tailored portfolios to institutional and retail clients," said Laurence D. Fink, BlackRock chairman and CEO, in a statement.

Barclays had planned to sell its San Francisco-based iShares exchange-traded fund, which generates half of the asset management arm's profits, to CVC Capital Partners for $4.4 billion. But under a "go shop" clause in the agreement, CVC now has five business days to match or top BlackRock's bid for the whole Barclays unit or will have to walk away with a $175 million breakup fee.

BlackRock said the cash portion of the purchase price will be funded through a mix of existing cash, debt facilities and proceeds from the issuing of 19.9 million shares to institutional investors for a total of $2.8 billion.

A group of banks, including Barclays, Citigroup and Credit Suisse, has committed to provide BlackRock with a new 364-day revolving credit facility of up to $2 billion. The facility would be repaid during the term from the proceeds of any capital raising transactions.

The deal is subject to approval from the shareholders of Barclays and regulators.

Blake Grossman, CEO of Barclays Global Investors, will serve as a vice chairman of the combined firm, head of scientific investing, and a member of the Office of the Chairman. Barclays CEO John Varley and President Bob Diamond will join BlackRock's board.

The deal with BlackRock will boost the U.K. bank's tier 1 capital ratio, a key measure of a bank's ability to pay debts of all types, to 8.0%.

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