BlackRock About to Be No. 1 Money Firm

Fink's Company, Combined with Barclays's Unit, Would Be Largest at $2.8 Trillion in Assets By ELEANOR LAISE One of the money-management business's rare successful acquirers is on the brink of its biggest deal ever. An expected deal in which BlackRock Inc. would buy indexing company Barclays Global Investors from British bank Barclays PLC is likely to be announced as early as Thursday, according to people close to the matter. The New York money manager is expected to pay about $13 billion for the asset-management unit, and Barclays could retain about a 20% stake. The deal also could give Barclays a seat on BlackRock's board. BlackRock is expected to fund a portion of the purchase from sovereign funds in the Middle East. Combined with BGI, BlackRock would be the world's largest money manager, with roughly $2.8 trillion in assets under management. That is about eight times the assets BlackRock had in 2004, before it embarked on a series of deals that helped assets under management leap to $1.3 trillion by the end of last year. The BlackRock deal could portend more consolidation in the asset-management business, which has been hit hard by a combination of declining stock prices and investor withdrawals. Profits have shrunk, and many fund companies are trying to build broad product lineups to hold on to investor dollars. BlackRock's stock has jumped 9% this week as talk of a potential deal intensified. Though asset-management industry mergers and acquisitions have a spotty track record, BlackRock has fueled much of its growth in recent years with a string of deals. Yet a BlackRock-BGI combination isn't without risks. Analysts wonder whether such a large money manager has much room to expand, and whether BGI's specialty, index-tracking products, fits well under one roof with BlackRock's active management expertise. Biggest Managers Money managers ranked by world-wide assets. Assets in trillions, as of Dec. 31, 2008* Manager Assets Barclays Global $1.5 State Street Global 1.4 Fidelity Investments 1.4 BlackRock 1.3 Vanguard Group 1.1 J.P. Morgan Asset Mgt. 1.1 BNY Mellon Asset Mgt. 0.9 Goldman Sachs 0.8 Pimco 0.7 Legg Mason 0.7 *managing assets for U.S.-based, institutional, tax-exempt investors Source: Pensions & Investments Laurence Fink founded BlackRock in 1988 and has overseen its growth from a firm with $1 billion in assets under management to one of the industry's biggest players. Though much of the growth came through BlackRock's reputation as a strong institutional bond manager, in recent years the firm also has raked in assets by going on a shopping spree. The company bought SSRM Holdings Inc., which owns State Street Research & Management, in 2005, merged with Merrill Lynch Investment Managers in 2006, and acquired the funds-of-funds business of Quellos Group LLC in 2007. The string of deals helped BlackRock reinvent itself with a more diversified mix of stock and bond funds. The State Street and Merrill Lynch deals did much to expand BlackRock's U.S. mutual-fund business and stock-product lineup. The Merrill deal helped BlackRock boost product distribution around the world. The deal also more than doubled BlackRock's assets under management, to about $1 trillion. BlackRock's relatively smooth integration of these businesses is unusual in asset-management industry mergers. The deals are often hard to pull off, industry observers said, because success depends largely on managers who often come from different corporate cultures and don't always have strong incentives to stick around. And bigger deals aren't necessarily better. Merrill Lynch's 1998 acquisition of Mercury Asset Management, the biggest money-management deal at the time, ran into troubles, such as investment-personnel defections. But BlackRock tends to take "a very thoughtful and calculated" approach to deals, said Michael Herbst, mutual-fund analyst at investment-research firm Morningstar Inc. The Merrill Lynch deal worked out well for fund shareholders, in part, because BlackRock helped the Merrill funds bolster stock research and improve risk management, Mr. Herbst said. The diversified product mix built largely through its recent deals helped BlackRock become one of the few asset-management firms to emerge from the market downturn relatively unscathed. BlackRock has also become a partner with the government in programs aimed at calming the financial crisis. The firm has helped to analyze the hard-to-price assets of some financial institutions and has applied to be one of a few managers to buy toxic assets from banks as part of the Public-Private Investment Program. BlackRock is partially owned by Bank of America Corp. and PNC Financial Services Group Inc. View Full Image Bloomberg News In recent months, Mr. Fink has said that he sees smaller asset-management firms struggling in the coming environment of higher regulatory costs and other challenges. On a conference call in April, he pointed to acquisitions as a potential means of boosting the company's presence among individual investors and noted that BlackRock has been flooded with potential deals. "We have great opportunities to do an acquisition, and we will do what is right for the long term of our platform, what is right for our clients, and what is right for our employees," he said. But the BGI deal is by no means a slam dunk, industry observers said. It would roughly double BlackRock's assets under management, and there could be challenges digesting such a big acquisition. Such a large asset manager may have trouble executing some trades at favorable prices, because it can easily move the market. —Sara Schaefer Muñoz contributed to this article. Write to Eleanor Laise at eleanor.laise@wsj.com