Barclays Sells iShare Unit for $4.4B

123jump.com Staff
09 Apr, 2009
New York City

Barclays Plc sells its successful iShare unit for $4.4 billion or

[R]3:30PM New York, 8:30 PM London - Barclays sells its successful iShare unit for $4.4 billion or £3 billion. The embattled bank will also provide $3.1 billion at 400 basis points above Libor rate to complete the sale and retain right to gain on 20% equity stake under certain conditions.[/R]

Barclays Plc agreed to sell its popular exchange traded fund index operation with the name iShares to CVC Capital Partners. The sale will generate $4.4 billion and Barclays will book capital gain of $2.2 billion.

The gains will enhance the capital ratio by 54 basis points and pro forma Tier 1 capital ratio at the end of December 2008 would have been 10.3% and pro forma Tier 1 equity ratio of 7.2%.

The deal values the iShares unit at 10.1 times 2008 operating earnings and Barclays will provide $3.1 billion in financing for the purchase.

Barclays has agreed to hold no less than 51% of total financing for the first five years and may sell or syndicate the rest after the first year.

Barclays manage 1.04 trillion pounds in assets. The exchange traded funds business has grown in five years organically and assets under management increased to £226 billion in the period.

In the year 2008, iShare unit had revenues of £658 million and earnings before tax of £294 million. Barclays also retained the right to solicit other buyers at a higher price for the next 45 business days from April 15 with a breakup fee provision of $175 million.

Robert E. Diamond Jr, President of Barclays Plc is likely to receive cash dividend of $6.9 million as part of his option holding that included ownership of iShare division. Mr. Diamond was not involved in the transaction negotiations.

The core management team of Lee Kranefuss Mike Latham and Rory Tobin are expected to transfer as part of the transaction along with the majority of the remaining employees.

Barclays retains the right to receive 20% of the value of the stake in the unit if CVC realizes at least two times the return on its equity investment in the first two years and thereafter 2.5 times its investment and 25% internal rate of return from the iShares business.

Barclays ((BCS)) share surged 19.50 pence to close at 177.50 pence.