Back in April, private equity firm CVC Capital Partners Group agreed to acquire Barclays PLC's (NYSE:BLC) iShares business for $4.4 billion. At the time, the media heralded the deal as a new chapter in the history of the ETF marketer. A few months later, we've seen this isn't the case. Swooping in to steal CVC Capital's thunder is investment manager BlackRock Inc. (NYSE:BLK), which agreed on June 16 to pay Barclays $13.5 billion for all of its investment management businesses, including its iShares division. CVC Capital walks away with a $175 million break up fee; Barclays retains 19.9% ownership in BlackRock Global Advisors (the merged company's new name) while gaining some much needed cash, and BlackRock snags one of the best passive investors anywhere. On paper, the acquisition seems like it can't lose. However, anything can happen when you mix corporate cultures, casting a large doubt over its ultimate success.

IN PICTURES: Top 7 Bank Failures

The Stakes are High
The combined businesses will manage $2.7 trillion in assets, employing 9,000 people in 24 countries, and become the world's biggest investment manager, in charge of more assets than Fidelity Investments and the entire hedge fund industry combined. In addition to Barclay's 19.9% interest, PNC Financial (NYSE:PNC) and Bank of America (NYSE:BAC) will both have significant ownership positions in the new company. Is this a case of "two's a company, three's a crowd"? Time will tell.

A Clash of Ideals
Mergers and acquisition research shows that deals fail to deliver shareholder value 70% of the time, according to China Market Research Group. Those are awfully long odds for BlackRock. Its shareholders better hope CEO Larry Fink isn't just playing an ego game. While his boat may be the biggest going, it won't be for long if this marriage comes unraveled. Clearly, the key to a successful integration is fitting iShares $526 billion in exchange-traded funds, many investments in fixed income holdings into BlackRock's existing retirement and defined-benefit plans.

By doing so, it hopes to take some business away from

competitors State Street

(NYSE:STT), Northern Trust (Nasdaq:NTRS), Fidelity and others. These days it seems investors are moving away from active investments into more passive ones. Fink believes getting bigger through this specific acquisition makes too much sense to pass up. Maybe so, but you would think the top brass at BlackRock view the task of investing in a completely different manner than those at Barclay's. Bringing the two mindsets together as one won't be easy.

Retail Investors Won't Benefit
This deal isn't going to benefit average investors who own mutual funds and ETFs in their 401(k). Rather, it's about providing the broadest range of products and services humanly possible to pension funds and institutional investors that handle these retirement plans. It's a matter of convenience for these firms and consolidation helps make this possible. The classic example is Jarden Corp (NYSE:JAH). Its CEO, Martin Franklin, believes a greater range of products to bring to larger retailers like Wal-Mart (NYSE:WMT) simplifies the buying process, saving the world's biggest company time and money. It's supposed to be a win/win situation. Unfortunately, in the case of mutual funds, economies of scale aren't resulting in lower fees. In fact, the opposite is true. Vanguard Group, known to many as the house Jack (Bogle) built, recently increased the annual management fee that it charges for its U.S. Value fund (VUVLX) by 24%, from 37-46 basis points, and it did this after losing 35% in 2008. Do you still think this deal is about the little guy?

The Bottom Line
In a conference call on June 12, Fink told analysts, "This is in the forefront of a big consolidation wave in the asset-management business." He's definitely on a mission, and ultimately he might be proven correct. But is the toll the integration will take on the two companies worth the cost, financially or otherwise? (Learn about how to invest in companies before, during and after they join together in our article The Merger - What To Do When Companies Converge.)

Related Articles
  1. Investing Basics

    Explaining Unrealized Gain

    An unrealized gain occurs when the current price of a security exceeds the price an investor paid for the security.
  2. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  3. Investing

    Five Things to Consider Now for Your 401(k)

    If you can’t stand still, when it comes to checking your 401 (k) balance, focus on these 5 steps to help channel your worries in a more productive manner.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  9. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  4. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  5. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  6. Systematic Manager

    A manager who adjusts a portfolio’s long and short-term positions ...
  1. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  2. What are the best ways to use your 401(k) without a penalty?

    The best way to use your 401(k) retirement savings account is to take normal distributions after you reach retirement age. ... Read Full Answer >>
  3. Can I take my 401(k) in a lump sum?

    Establishing a retirement savings plan during your working years is a necessary part of comprehensive financial planning. ... Read Full Answer >>
  4. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
  5. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  6. Can my company ever be entitled to take my 401(k)?

    Depending on the terms of your 401(k) plan, your employer may be able to retain some, or all, of the contributions it has ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!