Merrill Lynch is close to doing what Morgan Stanley could not: aquire a large stake in BlackRock, the stellar bond funds house, in a deal that would create a $1 trillion money manager.
Though details were still being worked out, as reported in Monday’s The Wall Street Journal, Merrill would swap its funds-management business for a 49 percent stake in the bond funds giant, a stake that has a market value of some $8.4 billion.
Similar talks with Morgan Stanley, which wanted a majority stake in BlackRock, were said to have fizzled at the end of January after BlackRock’s stock price shot up on the rumors, making an acquisition too expensive for Morgan Stanley.
The asset-swap setup is reminiscent of the deal cemented last year between Legg Mason and Citigroup. The only difference is that in exchange for its asset-management business, Citigroup got Legg’s brokerage force as well as a stake in the resulting money-management powerhouse.
Brokers at Merrill and elsewhere may see the BlackRock deal, if it goes through, as another vote in favor of open architecture. Merrill would merely be a minority holder in a money-management firm rather than operating a money-management division, likely relieving brokers of any remaining pressure to sell in-house mutual funds.
The deal would essentially double the $586 billion Merrill has under management. Merrill is one of the country’s biggest stock fund managers, while BlackRock is most famous for its high-performing bond funds. Merrill Lynch Investment Managers generated 2005 pretax profits of $586 million, up 27 percent and accounting for 7.9 percent of Merrill's pretax earnings that year. In 2005, BlackRock earned net income of $233.9 million, up 63 percent.
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For more on the talks between Morgan Stanley and BlackRock from Registered Rep., click here:
Morgan, BlackRock Talks Reportedly Off