British banking giant Barclays Bank Plc (BCS,BARC.L) intends to dispose of its entire $6.1 billion, or 3.8 billion pounds, worth stake in BlackRock, Inc. (BLK) as it aims to strengthen its capital amid a tough regulatory environment.
In a filing with the U.S. Securities and Exchange Commission on Monday, the world's largest asset manager said that Barclays will sell its entire 19.6 percent stake (approximately 35.2 million shares) in BlackRock through an underwritten public secondary offering.
Barclays also expects to grant the underwriters a 30-day option to purchase an additional 10 percent of the shares offered. BlackRock will not receive any of the proceeds from the sale of shares of its common stock.
Barclays Capital Inc., Morgan Stanley & Co. LLC and BofA Merrill Lynch are acting as joint bookrunners in the offering. The companies said the secondary offering will occur simultaneously in the United States and internationally through underwriters.
BlackRock has also agreed to repurchase up to $1 billion of its stock from Barclays conditional on completion of the offering.
Barclays' stake holding dates back to the December 2009 sale of Barclays Global Investors to BlackRock for about $15.2 billion. The deal made BlackRock the world's largest asset manager, while it gave Barclays a boost in its capital.
In September 2011, Barclays' investment in BlackRock was written down to a fair value of 3.4 billion pounds, following a decline in BlackRock's value. Barclays noted that the subsequent increase in value of the stake has been taken to equity.
The current market value of Barclays' investment in BlackRock is calculated on the closing price of BlackRock common stock on May 18 of $171.91 and assuming conversion of preferred stock. The companies said they will issue a further statement following pricing of the offering.
As per reports, Barclays' stake sale is part of its efforts to get the bank's return on equity back above 13 percent. The latest round of rules from the Basel Committee on Banking Supervision will reportedly force Barclays to set aside capital against the stake to cushion itself against any decline in the holding's value.
Back in April, Barclays Chief Executive Bob Diamond had noted that the firm achieved an adjusted return on equity that exceeded 12 percent in its first quarter, adding that the operating environment remains unpredictable.
"We will be proactive and seek to lead the agenda on recovery and resolution planning, which is a critical step to eradicate "too big to fail", while continuing to remain closely engaged with regulatory agencies and governments," he then said.
In pre-market activity, Barclays shares are currently trading at $11.37, up $0.21 or 1.88 percent, while BlackRock shares lost $3.91 or 2.27 percent and currently trading at $168.
In London, Barclays shares are currently at 178.85 pence, up 2.75 pence or 1.56 percent.
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