BlackRock and Merrill Lynch shares surged for the second consecutive day on speculation that BlackRock will acquire Merrill Lynch Investment Managers in exchange for a significant stake in the combined investment management entity. BlackRock was trading at roughly $146 per share on Tuesday afternoon, up almost 12% from its closing price on Friday. Shares of Merrill Lynch were trading at more than $75 earlier this afternoon, up 3.3% from Friday.
Several sources said the two firms, which have been in talks for more than a week, are likely to announce the completion of the deal by the end of the day Wednesday. Representatives for BlackRock and MLIM declined to comment.
If the deal is announced, industry observers said it would be a significant boon to BlackRock in particular. Besides adding MLIM's $544 billion to BlackRock's current $453 billion in assets under management, BlackRock would take a significant step toward diversifying its investment management business with a more balanced base of fixed-income and equity offerings. Almost 70% of BlackRock's assets now are in fixed income, while about 20% is in cash management strategies.
"Markets are cyclical, and BlackRock has done very well as a fixed-income specialist in recent years," said Denise Valentine, senior analyst with Celent, a research firm. "Every investment style goes out of favor at some point, and investment managers should be considering ways to diversify their product lines so that they are less susceptible to market downturns."
BlackRock, which has $37.3 billion in equities, would increase its total equity assets to $336 billion if the deal with MLIM goes through, estimated David Haas, an equity analyst who covers BlackRock for Fox-Pitt Kelton, an investment bank.
"The Merrill equity looks like it will stay if these two get together," said one recruiter, who declined to be identified. "But if you're in fixed income for Merrill, this is not welcome news, and there could be a good deal of redundancy."
How the two companies will integrate the two equity operations remains unclear. BlackRock increased its equity assets 152% last year, largely from its acquisition of State Street Research & Management. MLIM has a much more robust set of equity offerings that could be added to BlackRock's product lineup without creating a significant amount of overlap, said sources.
"If there is a distinct enough positioning in the equity products and the equity team, they could probably keep a good part of the equity operations intact," said Kevin Quirk, principal at Casey Quirk & Associates. "It's less critical to have equity teams all under the same roof, but quick product rationalization will play a crucial role in whether or not this deal could be successful."