Talk of the $8 billion deal between
According to the pending agreement, Merrill Lynch would agree to pass its asset management business to BlackRock, in exchange for a 49.8% stake in the money manager.
"They want to cut ties between their brokerage and asset management businesses to reduce conflicts of interest," Craig Woker, an analyst at
Meanwhile, at institutional investing-heavy BlackRock, "they have a small retail presence," Woker said. Partnering with Merrill Lynch allows them to tap into the giant's retail network.
The deal would allow Merrill Lynch, which has been struggling to sell its funds under different brand names outside of its own network, to focus on its stronger businesses. In 2005, Merrill Lynch Investment Managers contributed only 8% to its parent company's bottom line, according to data from the
The Merrill-BlackRock marriage mimics last year's sale of
Analysts expect more to come.
"You are going to see a flood of deals from insurance companies and banks that started proprietary fund families and have been unable to successfully distribute them through their captive sales organizations," said Burton Greenwald, an industry consultant based in Philadelphia.
Reverberations are expected to travel north of the border, too, according to the Toronto Globe and Mail. In 2001,
The danger of such deals is always in the integration, mutual fund consultant Geoff Bobroff told Marketwatch. "The major difficulty is the cultures," he said. While BlackRock will beef-up its retail business through the merger, it is, at its core, built around institutional fixed-income clients, he said. Now Merrill, which offers underwriting of bonds, would have a compelling interest. "It just raises the question," he said.