Shares of BlackRock Inc. rose nearly 7% on Friday as rumors reemerged that Morgan Stanley was interested in the New York money manager.
According to the latest market talk, the companies were discussing a deal that could let PNC Financial Services Group Inc. cash out its 70% stake in BlackRock at a time when the money manager’s stock sells at a hefty premium to earnings and to the shares of its peers. Spokespersons at PNC and Morgan Stanley declined to comment, and a spokesperson at BlackRock did not return a call.
BlackRock’s fund portfolios would complement Morgan Stanley’s asset management offerings, said Jeffrey Harte, an analyst at Sandler O’Neill & Partners LP. “The combination makes some sense on paper.”
But pricing could be an obstacle for Morgan Stanley given BlackRock’s high share price, he said. Another analyst estimated the likely price for PNC’s stake at up to $10 billion.
In November, the New York Times reported that Morgan Stanley had courted BlackRock CEO Laurence Fink for its executive team. Mr. Fink and Morgan Stanley CEO John Mack served on the board of the New York Stock Exchange together from March 2002 through November 2003 and were on an advisory panel to help set policy in the wake of the scandal over the compensation package for Richard Grasso, then the exchange’s chief executive.
BlackRock shares have surged in the past year, largely driven by the company’s bond business, according to a Morningstar Inc. analysis released Thursday. It attracted $23.7 billion of new assets in the fourth quarter, to a total of $452.7 billion, a 6% gain from the year before, according to its earnings report on Thursday.
Several analysts expressed favorable views of the potential deal in reports to clients. Goldman Sachs analyst James Fotheringham wrote: “BlackRock’s management fits better with Morgan Stanley’s organization.”
“We envision BlackRock’s strong management team potentially adding significantly to Morgan Stanley’s organization in a way that they could not for PNC,” Mr. Fotheringham wrote. He added that a deal is likely given the strategic benefits to the parties involved. Morgan Stanley would probably pay $8 billion to $10 billion for PNC’s BlackRock stake, he said.
BlackRock shares were trading at $127.25 late on Friday, up 6.6% from Thursday’s close of $119.35.
Mr. Mack, who took Morgan Stanley’s top post in July, has said in conference calls with analysts that he would consider bolstering the investment bank’s asset management business by acquiring money managers and hedge funds. The company has seen high management turnover in the past year, and its asset management and retail brokerage businesses have struggled.
