Merrill’s deal with BlackRock to prompt ‘large-scale consolidation’

The purchase of Merrill Lynch Investment Management (MLIM) by BlackRock Inc – the biggest funds management acquisition ever – is likely to be followed by similar mergers and acquisitions, according to analysts and the chief executive of BlackRock himself, Laurence Fink.

Fink was quoted as saying at the press conference announcing the deal in New York last week: ”We’re going to have a large-scale consolidation in the investment business.” BlackRock, which is controlled by another distribution-orientated US financial services company, PNC Financial Services, is one of the world’s largest bond managers, with $US452 billion under management. MLIM has a more diversified book of business, with more equities and balanced funds, and total funds under management of $US544 billion. Share prices among the listed funds managers in the US, Europe and Japan, have risen well ahead of the markets in the past two years, partly fuelled by speculation about further M&A activity. BlackRock, which had recently been approached by Morgan Stanley, has seen its shares rise 82 per cent in the past year. Legg Mason, which announced its own mega deal only last year through the acquisition of Citigroup Asset Management for cash and shares, has seen its shares rise 67 per cent – mostly after its announcement. According to Bloomberg, the largest 50 publicly listed asset managers in the world have seen their average share price rise 42 per cent in the past year. Benjamin Phillips, managing director of New York-based investment bank Putnam Lovell NBF, said: “You’re going to see more of these types of deals in the US and Europe … anticipation of mergers is putting froth in the market now’ that could drive values higher,” Bloomberg reported. The deal will have implications throughout the world, however, Australia is one place where there is unlikely to be much, if any, disruption. BlackRock does not have an office in Australia but has picked up several institutional mandates from super funds. Its main presence here is through an arrangement with BT Financial which provides the firm with access to the retail market. As the deal will not be consummated until later this year, the fate of that arrangement is unlikely to be known in the short term. In the US, at least, the newly merged company, will be known as BlackRock but whether the MLIM brand is able to be retained in other parts of the world is unknown too. Merrill will be the largest shareholder in BlackRock, with 49.8 per cent, of which 45 per cent is voting stock. Next largest will be PNC with 34 per cent. The public and employees will have just 17 per cent.