The biggest asset-management deal in history officially closed today. BlackRock, the nation’s third-largest bond fund manager, said it has completed its takeover of the asset-management arm of Merrill Lynch; the union is one of the world’s largest asset managers—and the largest publicly traded asset manager on the New York Stock Exchange—with nearly $1.1 trillion in assets.
“Together, we have global scale and resources with a unified platform for information sharing that will enable us to help our institutional and retail clients fully realize opportunities in today’s marketplace,” said BlackRock Chairman and CEO Larry Fink in a press release.
Back in February, Merrill announced it would swap Merrill Lynch Investment Managers for a 49.8 percent stake in the combined BlackRock company. Former parent company PNC Financial Services Group will retain a 34 percent stake, and employees own roughly 17 percent of BlackRock. From an investment standpoint, the two companies complement each other very well, with Merrill combining its strong retail equity presence and army of brokers with BlackRock’s formidable bond-fund lineup and institutional portfolio-management expertise. In doing so, each have addressed their biggest weaknesses.
The two firms have spent the last seven months evaluating the product lineup and shoring up the infrastructure to allow for a seamless transition for its clients, according to company officials. The new BlackRock will remain independent and, therefore, will allow BlackRock wide distribution in the retail marketplace and will have control of Merrill’s rehabbed line of mutual funds. Merrill, on the other hand, retains a sizable stake and gets rid of a perceived conflict of interest as a manufacturer and retailer. The blockbuster merger follows the asset-swap in June 2005 between Legg Mason and Citigroup in which Citi traded its mutual fund unit for Legg’s brokerage operation.
Merrill’s Chief Executive Stan O’Neal said in February there was no regulatory pressure to separate asset management from the company’s broker network, but Merrill conceded it had been tough to sell its funds through third parties due to perceived conflicts. Nevertheless, regulators have slapped fines and sanctions against a number of firms, including a $50 million demerit to Morgan Stanley for holding sales contests that rewarded brokers for recommending house funds over nonproprietary funds without proper disclosure.
By unbundling its asset-management business, Merrill is endorsing an open architecture platform, where third-party asset managers are welcomed in its army of more than 15,000 financial advisors. The new company’s mutual funds will be sold under the BlackRock name in the U.S, while the Merrill name will remain in use overseas.
The company’s head honcho also pledged to remain dedicated to offering advisors a well-diversified array of quality funds. “We remain steadfast in our focus on delivering strong investment performance and superior service to each of our clients as we continue to build a truly exceptional franchise,” Fink said. Fink also told Registered Rep. in an interview he expects to launch a massive advertising campaign that will include spending 10 times the amount BlackRock has spent in years past.
(For more on why Fink pulled the trigger on this deal, please read A Colossus Is Born.)
The combined firm now has 4,500 employees spread across 18 countries with a major footprint in key global markets, including the U.S., Europe, Asia, Australia and the Middle East. Blackrock, headquartered in New York, also announced it has increased its board of directors to 17 with the appointment of three veteran investment professionals, including Deryck Maughan, managing director of Kohlberg Kravis Roberts and chairman of KKR Asia; Robert Doll, vice chairman of BlackRock and BlackRock’s chief investment officer of global equities; and Robert Kapito, vice chairman and head of portfolio management at BlackRock. A majority of the board is independent.
For a complete listing of BlackRock's new fund lineup, click here.