Retail brokerage giant Merrill Lynch & Co. Inc. has agreed to combine its asset-management business with money manager BlackRock Inc. in exchange for a nearly 50 percent stake in BlackRock.
The transaction, announced Wednesday and expected to close in the third quarter, would transform BlackRock into one of the world's top money managers, with an asset base of around $1-trillion.
The deal comes just weeks after Wall Street investment bank Morgan Stanley ended widely reported discussions for obtaining a stake in BlackRock and as more and more top-tier Wall Street firms look to smaller, more specialized competitors for alliances or acquisitions.
Under the deal, Merrill Lynch's stake in BlackRock will be 49.8 percent, and it will have a 45 percent voting interest in the combined company. The company will operate under the BlackRock name and be governed by a board of directors with a majority of independent members.
PNC Financial Services Group Inc., which bought BlackRock in 1995 and owns 70 percent of the New York investment firm, will maintain a 34 percent stake in the company. PNC expects to see immediate improvement in its income from BlackRock.
BlackRock chief executive Laurence Fink will be CEO and chairman of the combined company, and BlackRock president Ralph Schlosstein will maintain his post. Robert Doll, chief investment officer of Merrill Lynch's asset management business, will become vice chairman and chief investment officer of global equities. Doll is also expected to join the company's board. "The biggest thing now is to execute on our potential," Doll said. "You look on paper, this deal is awesome. But there's a fine line between excellent execution and not-so-good execution, or keeping your client and losing your client."
Merrill Lynch becomes the second major Wall Street firm in less than a year to sell off its asset-management business. In June, Citigroup agreed to trade its asset-management business to Legg Mason Inc. in exchange for Legg Mason's broker-dealer business.
In addition, Citigroup and Merrill are avoiding the potential for conflicts of interest stemming from their brokers and investment advisers recommending their own asset-management business' financial products, Halverson said.
As part of the BlackRock deal, Merrill Lynch chairman and CEO Stan O'Neal will serve as Merrill Lynch's designee on the new company's board, along with Gregory Fleming, Merrill Lynch's president of global markets and investment banking.