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. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  2. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  3. Retirement

    How Much Should You Have In Your 401(k) To Retire?

    Determining how much money should be in your 401(k) when you retire depends on several variables, many of which are uncertain.
  4. Mutual Funds & ETFs

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  5. Investing Basics

    5 Common Mistakes Young Investors Make

    Missteps are common whenever you’re learning something new. But in investing, missteps can have serious financial consequences.
  6. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  7. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  8. Products and Investments

    A Guide to DIY Portfolio Management

    These are some of the pillars needed to build a DIY portfolio.
  9. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  10. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  1. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  2. Will quitting your job hurt your 401(k)?

    Quitting a job doesn't have to impact a 401(k) balance negatively. In fact, it may actually help in the long run. When leaving ... Read Full Answer >>
  3. Can a 401(k) be taken in bankruptcy?

    The two most common types of bankruptcy available to consumers are Chapter 7 and Chapter 13. Whether you file a Chapter 7 ... Read Full Answer >>
  4. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  5. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  6. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
Trading Center