LONDON — Barclays said Thursday it has sold its iShares business to Blue Sparkle, or Bidco, a new limited partnership established by CVC Capital Partners Group SICAV-FIS for $4.4 billion.

The transaction will allow Barclays to crystallise significant value through the realisation of an expected net gain on sale of $2.2 billion, taking into consideration goodwill of $1.4 billion, from a business grown largely organically over the last five years, it said.

It will also give Barclays the opportunity to maximise value through the sale of a business which represents a distinct channel for Barclays Global Investors and which now has the scale, depth of client relationships and brand equity to continue to be successful on a standalone basis.

The transaction will further provide Barclays the opportunity to participate in future value creation through a continuing commercial relationship with the iShares business and the potential crystallisation of consideration through a cash-settled participation interest entitling Barclays to receive a portion of the value uplift on iShares if certain performance-related hurdles are met.

It will enhance the capital position of Barclays, adding an estimated 54bps to Equity Tier 1 pro forma as at Dec. 31, 2008, the Bank said.

Taking into account the expected net gain on the sale of iShares, conversion of the Mandatorily Convertible Notes issued in Nov. 2008 and all innovative Tier 1 capital, on a pro forma basis, Barclays would have reported an estimated Tier 1 ratio of 10.3% and an estimated Equity Tier 1 ratio of 7.2% as at Dec. 31, 2008.

Under the transaction agreement, for a period of at least 45 business days from April 15, Barclays may solicit proposals for iShares and potentially other related businesses from third parties. There can be no assurance that the solicitation of proposals will result in any superior alternative transaction being agreed.

iShares is a global provider of exchange traded funds (ETFs) and forms part of BGI. Following the transaction, BGI will remain one of the world's largest asset managers. This scale, combined with deep client relationships and strong investment capabilities, offers significant opportunities for the growth of BGI's presence and share of supply in institutional asset management.BGI will retain all of its securities lending business.

The net proceeds of the transaction, after costs and assuming the distribution of a dividend to the minority shareholders in BGI comprising current and former employees, will be retained by Barclays and contributed to capital resources. The transaction is subject to receipt of regulatory and other approvals.

The debt financing for the transaction will be provided by Barclays in the amount of $3.1 billion. Barclays has agreed to hold no less than 51% of the total financing for the first five years and may syndicate the remaining 49% after the first year. The remainder of the consideration will be funded by equity provided by Bidco.

Barclays has the benefit of a go-shop period, which expires no earlier than June 18, 45 business days from April 15.

During this period Barclays can solicit or consider proposals for a superior transaction involving iShares and potentially other related businesses.

A go-shop break fee of $175 million would be payable by BGI to Bidco if BGI terminates the transaction agreement and agrees to any superior transaction with a party other than CVC involving iShares, and potentially other related businesses, and which is not matched by CVC within five business days.

Under the transaction agreement, CVC will grant Barclays a participation interest which will entitle Barclays to receive, in cash, 20% of the value of the equity return from the iShares business received by CVC on realisation after CVC has achieved a minimum return of no less than: (i) in the first two years, 2.0 times, and thereafter 2.5 times its equity investment; and (ii) a 25% internal rate of return from the iShares business.

Mr Diamond has taken no part in the consideration of the iShares transaction either as a member of the Board or as a director of BGI Holdings, the Bank said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.