Barclays in talks to sell BGI

Barclays is in talks to sell its prized asset management arm, a person familiar with the matter said, after the auction of its iShares unit generated more interest in parts of the British bank.

The bank is discussing a sale of San Francisco-based Barclays Global Investors (BGI) asset management operations for about £6.5 billion, the person said, having drawn a raft of suitors for iShares, the exchange-traded funds unit that is part of BGI.

Potential bidders for BGI, renowned for the number of PhDs among its staff, include US money manager Blackrock, the Financial Times said. Bank of New York Mellon is also in talks about BGI, Bloomberg reported.

Barclays, Blackrock and BNY Mellon declined to comment.

"If a sale of BGI as a whole were on the table at the price north of $10 billion I would regard that as a good price in this market," said Ian Gordon, analyst at Exane BNP Paribas.

"I don't think Barclays' core objective is to sell BGI, but if they are offered a price for any business that is accretive to shareholders they are duty-bound to look at it."

Selling BGI would derail a separate sale of iShares, which Barclays has earlier agreed to sell to buyout firm CVC Capital Partners for £3 billion. Barclays is allowed to look for other bidders until June 18.

By 10:20 a.m. Barclays shares had jumped 9.2 per cent to 276 pence, to value the bank at about £23 billion. The shares have soared fivefold since January.

The talks over BGI, which likes to boast about the work done by its research lab, have emerged as Barclays attempts to lure more offers for iShares before the June 18 deadline.

WINDFALL FOR STAFF

BGI is staffed by academics covering a wide range of disciplines from economics to engineering, physics and computer science, with graduates from the nearby University of California at Berkeley attracted to its collegiate atmosphere.

Senior management and other staff at BGI would reap a windfall if the business was sold, due to a lucrative equity ownership plan (EOP) dating back to 2000.

The staff are in line to get a cash payout under the iShares deal, which would be bigger if all the business is sold.

Employees own 4.5 per cent of BGI, rising to 10.3 percent if options are exercised. They include Bob Diamond, president of Barclays and head of BGI, who was due to receive £4.7 million in cash under the agreed iShares sale.

BGI has £1.04 trillion in assets under management, including £226 at iShares.

Its passive management business, funded by long-term "sticky" institutional money, accounts for over 70 per cent of the total and is likely to be attractive to bidders at a time when many asset managers have seen significant outflows.

An offer of about £6.5 billion for BGI would represent about 10 times last year's earnings before interest, tax, depreciation and amortisation (EBITDA) of £673 million, just under the 10.1 times EBITDA valuation on CVC's bid for iShares.

A sale of BGI would further boost Barclays' capital. Its core Tier 1 ratio will rise to 7.2 per cent under the planned iShares sale, and an £800 million gain on a bond exchange yesterday will add another 18 basis points. Selling BGI would lift the ratio to nearly 8 per cent, analysts estimated.

Barclays has received new interest from both trade and private equity buyers for iShares, as it seeks a higher offer allowed by a "go shop" clause in the CVC deal.

Private equity firm BC Partners has bid £3.5 billion for the business, according to a newspaper report this month, while Apax Partners and Hellman & Friedman are seen as less likely to be still in the race.

Barclays owes CVC a $175 million break-up fee if it sells iShares to another bidder.

BGI, the world's biggest fund manager, is also included in the "go shop" clause, giving potential suitors a closer look at its business, because it shares some businesses with iShares, such as its stock lending business.