Summary
A deal that would surpass the combined CVC offer price and the additional cost of the break fee payment would likely need to be for more than just the iShares business and include the rest of BGI. One of the biggest revenue generators for BGI is the securities lending business which was EXCLUDED from the CVC deal. It is unlikely that BGI would sell the iShares business and include securities lending as it would undermine the overall BGI program and create an iShares lending entity that was too small to compete stand-alone.
Analysis
The CVC deal and this article both focussed on the sale of iShares. The latest media coverage widens the net to include BlackRock and Bank of New York Mellon as potential bidders. A purchase of BGI would creat the potential for synergies with the substantial existing asset management activities at both firms as well as capturing the top-tier securities lending business of BGI.
Securities lending is a technology intensive business that benefits greatly from scale. BGI would bring substantial additional equity flow to the existing BNYM business which has a leading fixed income business as well as equity lending. BlackRock is more of a niche lender and the BGI business would transform its securities lending activity. This is particularly true in Europe where BlackRock has been pursuing an outsourcing arrangement and Asia, where BlackRock has no presence.
The iShare ETF business might be retained by either firm or sold off to a trade buyer or buyers, perhaps breaking it into regional pieces.
