April 22, 2009

Barclays to Sell iShares

Less than two years ago, the mere rumor of iShares being up for sale would have been enough to engage dozens of companies into a bidding war over the world's largest ETFs provider.

Not only are ETFs the fastest growing segment of the asset management business, iShares (a subsidiary of Britain's Barclays Bank PLC) has represented the cr?me' de la cr?me' of ETF investing. But today, even good businesses on the selling block are attracting scant interest.

Like other global banks, Barclays Bank (the parent company of Barclays Global Investors) has been feeling the economic pinch and took mammoth losses on mortgage-related investments. The thinly capitalized financial giant found itself caught between a rock and a hard place. To raise money, it moved to sell profitable parts of its business, rather than sell shares to the British government.

Under the deal, which is valued at $4.4 billion, Barclays PLC agreed to sell the iShares ETF unit to CVC Capital Partners, the most serious bidder. According to Credit Suisse, CVC is paying 15 times iShares' annual earnings for one of the bank's most profitable business segments.

CVC Capital Partners is a European private-equity firm which manages roughly $21 billion in investment capital on behalf of 250-plus investors from North America, Europe, Asia and the Middle East. Among them are many leading pension funds, financial institutions and funds of funds.

CVC funds own 52 companies worldwide with combined sales of about $100 billion, employing some 450,000 people. The portfolio of companies includes the Belgium postal services, Formula One, Tower Records and more.

According to its website, CVC focuses on building business over the long-term, typically holding investments for five years or more. CVC tends to work closely with the existing management to make sure the companies they invest in perform to its full potential.

Barclays remains tied to the iShares unit as the bank retains a 20 percent share in future increases of iShares' value.

According to one news report, Barclays still has until June to seek a higher offer. It is unclear, though, whether any of CVC's rivals in the auction will resubmit bids. And Barclays would have to pay CVC a $175 million break-up fee if it decides to break this deal in favor of a better offer.

Some of the most popular iShares index ETFs include the iShares MSCI EAFE ETF (EFA), iShares MSCI Emerging Markets ETF (EEM), iShares S&P 500 ETF (IVV), iShares Barclays TIPS Bond ETF (TIP) and iShares Barclays Aggregate Bond ETF (AGG).

The 10-largest iShares ETFs account for some $120 billion of assets.

Just what the sale to the new owner will mean for iShares' shareholders in terms of fees and continuity has yet to be determined.

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