MERRILL LYNCH is poised to win the battle for BlackRock, beating arch rival Morgan Stanley with a bid to take an $8 billion-plus (£4.6 billion) stake in the US fund manager.
Shares in BlackRock surged more than 11 per cent to $146 in midday trading yesterday, as rumours of a deal that would create a firm with $1 trillion in its coffers, swept Wall Street.
Merrill Lynch is understood to be in advanced talks to buy a 49 per cent stake in BlackRock for $8.4 billion. But the deal will not be a simple swap of assets for cash.
Instead, Merrill is working out a deal to exchange its massive fund management business, which has some $550 billion under management, for a 49 per cent stake in BlackRock. BlackRock, which primarily manages funds invested in debt, has some $450 billion of assets under management.
The firm would continue to be run as BlackRock, and Larry Fink, its chief executive, would remain in charge.
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Several key executives from Merrill Lynch would migrate to the firm, however. If the deal goes ahead, the new BlackRock would have a stock market value in excess of $16 billion. Neither Merrill Lynch nor BlackRock would comment about the rumoured talks, but sources claimed an announcement about the prospective deal could be made by the time the New York market closes today. The same sources said, however, that the talks were still at a highly sensitive stage.
If a deal is signed it will mark the biggest single transaction completed by Merrill since Stan O’Neal became chief executive in 2002. Mr O’Neal has built a reputation as a cost cutter and has forged several smaller deals, but has yet to strike a significant transaction that cements the bank’s position as a leading light on Wall Street. The deal would further mark a major coup for Mr O’Neal as Morgan Stanley, Merrill’s chief rival on Wall Street, failed to strike a deal with BlackRock just two weeks ago.
John Mack, the Morgan chief executive, was in talks about buying a majority stake in the money management firm and was willing to offer an executive post to Mr Fink. Mr Fink is one of the most highly respected figures on Wall Street and was approached last year to become the chief executive of Morgan Stanley, before John Mack agreed to return to the bank.
“This deal will certainly inflame the rivalries between Merrill and Morgan,” a Wall Street source said last night. If the deal goes ahead Mr Mack will be under more intense pressure to sign a significant deal in the asset management sphere. The new Morgan Stanley chief executive put down a marker late last year and told investors that he would seek to bolster his fund management arm. Sources close to Mr Mack said last night that talks with several hedge funds continued, but that no big developments had occurred since talks with BlackRock collapsed a fortnight ago.
Morgan may also seek to bolster its fund management arm by hiring new staff and building the division from within.
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If the BlackRock deal goes ahead, Merrill Lynch will be a force to be reckoned with in fund management as its equity-focused, private client-based business is a perfect fit with BlackRock’s largely institutional mainly bond-based portfolio.
Critics of the prospective deal pointed out last night that Merrill could have bought BlackRock much more cheaply in 2004, when Mr O’Neal first held talks with the firm. “BlackRock was worth half as much back then,” a source said. But Merrill investors seemed happy with the prospective deal. Last night shares in the bank rose more than 1 per cent to $73.55.
MOVING ON
Fund management consolidation