Well, it appears that a couple of long-time buds will be going their separate ways. Barclays PLC (BCS) announced Monday that it will be selling its entire stake in BlackRock, Inc (BLK). The market value of Barclays investment in BlackRock, based on the closing price on May 18 of $171.91, was $6.1 billion. Barclays current holdings represent a 19.6% ownership interest in BlackRock. Barclays, Morgan Stanley, and Bank of America will jointly oversee the sale of shares. This is a mammoth deal between two large financial institutions. Pricing terms for this transaction were expected to be determined on May 23.
In September 2011, Barclays was forced to write down the value of its holdings in BlackRock after shares slipped 24% since 2009. This transaction will allow Barclays to get rid of a lot of volatility stemming from this holding. After this news came out, London shares of Barclays increased in early morning Monday trading. BlackRock is stated to buy back as much $1 billion worth of shares, providing Barclays with a solid anchor investor.
One can only assume how this transaction will affect BlackRock. This financial institution, as everyone else, was hit hard by the recession, but it clung to life and is still a large player. If you have been wanting to own stock in this company, but not wanting to pay the hefty price tag, now might be an opportune time to set a limit order. This transaction will not bring down the company, but it will produce some volatility in its share price. One might find that valley that they have been looking for.
Monday should prove to be an interesting day as we see how the market reacts to this news. $6.1 billion is a lot of money to be trading hands. Especially in regards to a financial services company. Just recently one of the top investors at J.P. Morgan made a bad investment call that cost the company over $2 billion. The market reacted harshly with a wild ride and mass volatility. This transaction is a solid decision to let go of over $6 billion in BlackRock shares. Based on how important CNBC thinks this news is, the market could be facing another highly volatile week.
The sale of these shares will provide Barclays with ample cash and liquidity. Share prices of Barclays stock has already increased as a result of this news. This should be prove to be a solid homerun for Barclays. For BlackRock it might only present a slight investor deterrent. However, Barclays has its own reasons for the sale. BlackRock is still a strong company and should not see much volatility resulting from this news. The positive aspects will be shown on Barclays' side of the agreement. Barclays shareholders will see a nice incline that they should ride through. BlackRock should experience almost no change. A hold should be in place for both of these financial giants.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.