Sale Adds Some Sparkle to iShares
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Thursday, April 09, 2009

Sale Adds Some Sparkle to iShares

Barclays on Thursday pulled the trigger on the highly anticipated sale of its iShares ETF business. The UK-headquartered bank inked a deal to sell iShares to Blue Sparkle LP, a new limited partnership formed by private equity firm CVC Capital Partners, for $4.4 billion (3 billion pounds). The deal is seen to close in November.

The purchase price represents a multiple of 10.1 times iShares' 2008 EBITDA of 294 million pounds. The price tag also works out to about 1.3 percent of iShares' end-2008 AUM of 226 billion pounds.

Barclays will provide debt financing of $3.1 billion and retain a 20 percent stake in iShares.

Lee Kranefuss, CEO of the iShares business; Mike Latham, CEO of U.S. iShares and Rory Tobin, CEO of iShares Europe, are expected to constitute the core management team following the close of the deal.

Most of iShares' employees are also expected to stay on when the deal closes. At the end of last year, iShares had about 620 employees in 14 countries.

Under the agreement, Barclays may solicit proposals for iShares and other related businesses from third parties until at least June 19.

Blue Sparkle will receive a go-shop break fee of $175 million if Barclays terminates their deal and agrees to a superior transaction.

Jonathan Feuer, CVC's managing partner and global head of financial institutions group, led the deal for Luxembourg-headquartered CVC. His team members include Kamil Salame, who was hired last week as US head of the financial institutions group (see The MFWire, 04/02/09), Peter Rutland and Cameron Breitner.

The deal announcement came nine days after Barclays confirmed that CVC Capital is its preferred bidder for iShares (see The MFWire, 03/31/09).

iShares' sale is likely to "make banks and insurers with capital issues look at this transaction and think about what they should be doing," Darlene DeRemer, partner and head of the advisory practice at Grail Partners, told The MFWire in an interview.

Barclays Capital and Lazard and Co. advised Barclays on the deal. Clifford Chance LLP and Sullivan and Cromwell LLP served as the legal advisers.

"This transaction realises significant value for Barclays," said Barclays group chief executive John Varley in a news release. "iShares has experienced rapid growth over the past several years and has reached a point where it can develop further on a standalone basis. Barclays shareholders will benefit from a reinforcement of our capital base and an ongoing commercial relationship with iShares."

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