iShares Sale Not Happening – Yet

There’s been plenty of speculation on the sale of iShares. Finally, here’s the truth.

We’ve got Matt Hougan and John Spence and Chuck Jaffe and the Wall Street Journal—and now even Murray Coleman all jumping in and speculating on what’s going to happen with iShares. The truth is that none of them know—and even the people over at BGI probably don’t know. But I do.

I just don’t see it happening. Or rather, I do think that an eventual separation has become exponentially more likely … I just don’t think it happens immediately.

First of all, let me point you to the best blog on the topic yet. It’s Paul Amery’s blog from over on the https://www.indexuniverse.eu/ site. Here are the Cliff’s NotesTM of what Paul covered in his blog that few others have hit upon:

1. Barclays needs to tell the U.K. government whether or not it plans to take the Queen’s money in her “save the world” scheme. That’s a week from today. A week. And Barclays needs the (~$4 billion) that would be raised by selling iShares to avoid being the Queen’s, uh, lady dog friend as I put it in MY .eu blog (the editorial staff edited that out. Probably that prude Hougan. I know it wasn’t Paul, because his clever allusion to my reference talking about the “Queen’s Corgis” was not itself edited out). Anyway, I’d like to see you, say, try to sell your house for top dollar in this market-in a week. That’s why it probably won’t happen immediately.

2. But there are lots of reasons why it might well happen. For starters, in the BGI group, there is HUGE internal ownership (of about 6%) and an enormously generous profit-sharing scheme that:

 

a) Makes Barclays want to get rid of that ownership;

b) Might have the BGI guys incentivized to get while the getting is good. After all, they could potentially run their own business, which may well be appealing to Lee Kranefuss, after being tacitly passed over in the grooming for the next head of the Big Bank); and

c) Encourages the employees to push for getting a cash and ownership payout now, instead of leaving themselves at the whims of an angry public while working in a state-owned enterprise? Would you prefer “anything goes” or “beneficial ownership in my own company”?

3. Clearly Barclays is an EAGER seller and is working very hard to try to make this sale happen, even offering to finance almost the entire purchase price, according to an excellent Wall Street Journal article from a couple days ago.

4. Finally, as Paul pointed out, a “death spiral convertible” (love that term) dilution clause was granted by Barclays to its Abu Dhabi and Qatari investors in October. So it would come as no surprise whatsoever if some of those same Middle Eastern investors were involved in the private-equity-led consortium to buy iShares.

Despite all that, in this market and with that time frame, I just don’t see it happening. I’ve put out a headline that makes me look foolish if the iShares deal does go through within the next week—which it well could if all the effort going into this deal is any indication. So I’d look dumb, but it could be no match for Hougan’s horror-show USO-USL bungle (which I’ll never let him forget).

But the seed has indeed been planted (and not for active management as Chuck Jaffe misquoted me as saying in his column—though I did say I think active is coming to iShares regardless). I said the seed had been planted for a separation of the iShares franchise from Barclays at some point. Only time will tell if the opportunity could have never been better.

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