PNC has judged that it has better opportunities for its capital than continuing to ride the shift toward passive investing (and market gains) that BlackRock stock has provided. After diving to $327 apiece during the March coronavirus rout, BlackRock’s shares closed on Monday at $493 — just shy of their 2019 high. PNC doubtless doesn’t want to risk seeing another market correction when it can sell at these levels.
But for such a longstanding holder to be disposing of its entire stake sends a negative signal — even if PNC simply sees crisis-driven acquisition opportunities in its backyard. It is in both PNC’s and BlackRock’s interests to work together to get this mammoth deal done. BlackRock is issuing a prospectus. This up-to-date snapshot of the business ought to provide investors some comfort that they know what they need to know. BlackRock will buy $1.1 billion of the offering — a sign that it’s confident in itself and a move that usually boosts earnings per share.
It’s not clear whether the three investment banks involved — Citigroup Inc., Morgan Stanley and Evercore Inc. — have guaranteed PNC a specific price on the block, or whether the terms will be the result of indicative orders now being placed by investors. A hard underwriting commitment would be a brave thing in these markets, but there’s a price for everything.
Either way, much of the legwork of this transaction will have been done already. It’s hard to believe the protagonists would have announced this move unless they’d lined up some interested parties, starting with existing shareholders. This is an opportunity to snap up a big stake in BlackRock without pushing up its share price while you’re doing the buying, as would happen when acquiring in the market. That the shares barely budged in out-of-hours trading suggests the stock market isn’t anticipating indigestion.
The sale necessarily starts out as a collaborative process. But as PNC will not remain a shareholder, its obligations are primarily to its own investors. Its priority has to be getting the best price for this transaction. BlackRock’s needs are somewhat different: It will want a supportive and varied set of incoming shareholders and a stable share price once the deal is done. There’s still potential for the two sides’ aims to collide on a transaction this size.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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