BlackRock to Buy Barclays' BGI, Become World No.1

British bank Barclays confirmed on Friday that it had agreed to sell its BGI investment arm to U.S. firm BlackRock for $13.5 billion, creating the world's biggest asset manager.

Barclays said in a statement that a net gain of $8.8 billion would be used to bolster its capital strength, boosting the bank's equity tier 1 ratio by 163 basis points and its core tier 1 capital ratio by 150 basis points.

Sharon Lorimer

Including the impact from the conversion of convertible notes issued in November 2008, Barclays said its equity tier 1 ratio would have been 8.3 percent at the end of last year while its core tier 1 ratio would have been 8 percent.

In terms of current trading Barclays said its performance up to the end of May had been "generally consistent" with trends reported at the time of its interim statement on May 7.

The sale, which also includes the iShares business, will more than double BlackRock's assets to roughly $2.7 trillion and give the company, well-known for working with institutions and governments, access to fast-growing Exchange Traded Funds and retail investors.

BlackRock will pay $6.6 billion in cash and the rest in stock to acquire the unit.

"This is a transformational transaction" in the investment management industry, Laurence Fink, BlackRock's chief executive officer, said on a hastily arranged conference call. He said the deal will allow BlackRock to offer both active and passively managed investment portfolios.

Fink said the combined companies' market capitalization will be roughly $34 billion.

BGI, which ranks as Europe's largest hedge fund manager and operates in 15 countries, was long considered a top prize in the industry, and BlackRock beat out rivals including Bank of New York Mellon to win it.

In buying BGI, BlackRock will be able to acquire Barclays' iShares business, which Barclays had previously agreed to sell to CVC Capital Partners. But that deal, agreed to in the spring, allowed Barclays until the middle of June to try to find a better deal.

BlackRock, a 21-year-old firm with deep roots in the mortgage market, has grown into a powerhouse through acquisitions including its 2006 deal to buy Merrill Lynch's asset management operations for $8.6 billion.

Barclays will own a stake of roughly 20 percent in BlackRock, and the two firms will seek to expand their relationships in investment banking and wealth management.

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Fink said BlackRock has received commitments from a global network of institutional investors and clients to purchase 19.9 million shares at the closing of the transaction for a total of $2.8 billion.

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