BlackRock Buys Back BofA’s $2.5 Billion Stake

Stock repurchase puts paid to 2008 crisis, builds shareholder value using BLK’s free cash flow

BlackRock Inc. (BLK) and Bank of America (BAC) have struck a deal for the world’s largest money manager to buy back BofA’s $2.5 billion share in the company.

Tom Montag, president of Bank of America's Global Banking and Markets Group, will continue to serve on BlackRock’s board, signaling both companies’ intent to continue delivering products and services to their shared clients, BlackRock announced Thursday in a news release.

BlackRock CEO and Chairman Laurence D. Fink said in a statement that the stock repurchase as well as the company’s recent dividend increase show BlackRock’s commitment to growing shareholder value through effective use of its significant free cash flow.

"We are pleased to have worked with Bank of America Merrill Lynch to transition their ownership stake over the past six months, working in close partnership to realize value for all of our shareholders,” Fink said. “At the same time, we have reaffirmed our mutual commitment to our strategic relationship.”

In 2006, Merrill Lynch sold its asset management division to BlackRock in exchange for a 49% stake valued at $9.4 billion, helping BlackRock become a global investment powerhouse. At the height of the financial crisis in 2008, Bank of America acquired the shares when it bought Merrill Lynch. As of March 31, BlackRock’s assets under management totaled $3.65 trillion.

Under the terms of the deal, Bank of America will sell its remaining ownership interest in BlackRock, totaling 13.6 million of its convertible preferred shares for about $187.7 per share. The shares will be retired following the close of the transaction and thus contribute to BLK’s earnings per share without reducing the public float that can be freely traded as common shares. Expected to close around June 1, the share repurchase transaction is outside the company’s existing 5.1 million common share repurchase authorization.

BlackRock intends to fund the purchase of the shares through available cash and a total of $2.0 billion of commercial paper, medium-term and long-term debt. The purchase price represents a 3.6% discount to the average closing price for the immediately preceding 15-day trading period.

"There is a long history of collaboration between Bank of America Merrill Lynch and BlackRock that focuses on providing exceptional investment solutions for our respective clients," said BofA President and CEO Brian Moynihan in the BlackRock news release. “Our decision to monetize our stake in BlackRock will have no effect on our commitment to continuing this very successful partnership."

Read more about BlackRock news this week at AdvisorOne.com.

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