BlackRock lands BGI funds, Barclays boosts capital

By Svea Herbst-Bayliss and Steve Slater

BOSTON/LONDON (Reuters) - BlackRock Inc, the fund manager that has been one of the biggest winners of the credit crunch, has snapped up Barclays Global Investors for $13.5 billion in a deal creating the world's largest money manager.

The combined company, to be called BlackRock Global Investors, will have roughly $2.8 trillion of assets under management, more than double BlackRock's current size.

Barclays, Britain's second-biggest bank, will gain much-needed capital from the cash-and-stock deal.

BlackRock, founded 20 years ago as a bond investment firm, has managed to sidestep the toxic assets and vehicles that have laid low many competitors, giving Chief Executive Laurence Fink a reputation as one of the shrewdest asset managers on Wall Street. The U.S. government selected BlackRock to manage troubled assets from Bear Stearns and American International Group Inc.

The deal gives BlackRock exposure to exchange-traded funds, a product that has grown fast because it allows investors to buy assets easily that otherwise might be difficult to acquire, such as precious metals or foreign stocks. Exchange traded funds also typically have low management fees, which many investors have taken more seriously after a brutal decline in asset values in 2008.

"Exchange-traded funds have been a growth area in an industry that's struggling for growth opportunities," said Ralph Cole, who helps manage $2.2 billion at Ferguson Wellman Capital Management in Portland, Oregon.

New York-based BlackRock grew from a one-room investment firm to the largest publicly traded asset manager in the United States, and now the world, through a series of acquisitions. In 2006, it bought Merrill Lynch & Co's asset management business for around $8.6 billion.

BlackRock is paying $6.6 billion in cash and the rest in stock. It is raising $2.8 billion from the sale of 19.9 million shares to a group of institutional investors. BlackRock did not identify them, but people familiar with the matter expected Middle East sovereign wealth funds to be among them.