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Opinion

Inside Investment: Merrill and BlackRock - Rocking and reeling

What does Merrill Lynch’s $9.8 billion BlackRock deal mean for the European asset management industry?

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When a mega deal gets announced the impact is felt far beyond the two companies involved. For CEOs in the same industry it’s like a large, threatening clap of thunder. The deal engenders fear. They’d love to crawl under the covers and ignore it but they can’t. Business plans are cast aside with the cosy certainties that informed them. It’s time to go back to the drawing board.

For the asset management industry Merrill Lynch’s swap of its fund business for a 49.8% stake in an enlarged BlackRock is a $9.8 billion-sized thunderbolt. It’s the biggest deal ever by both dollar value and the size of acquired assets ($544 billion), surpassing Merrill’s own $5.3 billion purchase of Mercury Asset Management in 1997.

Merrill faced some specific problems. For much of its history, Merrill Lynch Investment Managers (MLIM) was a US mutual fund shop largely reliant for distribution on Merrill’s awesome brokerage sales force. But in recent years Merrill has found it increasingly difficult to sell home-cooking to its house brokers.

In 2005, 30% of MLIM’s US mutual fund sales were through Merrill brokers, significantly below internal targets.

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