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BlackRock to Acquire ETF Business

CS STT BLK

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According to Reuters, BlackRock Inc. (BLK - Analyst Report) is set to acquire Credit Suisse Group’s (CS - Snapshot Report) European exchange-traded fund (ETF) business. However, there is no official word from any of the parties involved in the deal.

The terms of the deal are also not known, as it has not been made public yet. BlackRock and State Street Global Advisors – asset management wing of State Street Corporation (STT - Analyst Report) – were the leading contenders for Credit Suisse’s European ETF operations when the company put it up for sale in October last year. However, State Street pulled out of the bidding in December.

The acquisition is likely to give BlackRock a competitive advantage in the European ETF market. Currently, BlackRock is one of the largest players in the European ETF space with almost 42% (worth nearly $331 billion) of the market share. As per ETFGI – a London-based research firm – the buyout may provide BlackRock the control of nearly 75% of the European ETF market, thereby making it the dominant player in that sector.

The ETF market has witnessed unprecedented growth in the last couple of years. With interest rates showing no signs of improvement, investors are looking for alternative areas of investment. This has given the ETF market a major boost as it helps the investors diversify their investments, achieve good benchmark returns and provides access to multiple assets and real-time asset allocation at a low cost.

The rapid growth of ETF markets has attracted a lot of attention from both investors and financial institutions. BlackRock – one of the largest asset management companies – has not remained indifferent to this growth story. It has used the opportunities to propel itself amongst the leaders in this arena.

BlackRock is constantly looking for opportunities that will further evolve its lucrative ETF business. Besides the abovementioned deal, the company bought Toronto-based Claymore Investments, a Canadian ETF operation, from Guggenheim Partners LLC in March 2012. All these endeavors are expected to prove beneficial to BlackRock’s top-line growth in the future.

BlackRock is expected to announce its fourth quarter 2012 results on January 17, 2013. The earnings ESP (expected surprise prediction) – the percentage difference between the Most accurate Estimate and the Zacks Consensus Estimate – is 0.81% for the company. This along with its Zacks Rank #2 (Buy) makes us sure that the company will outpace the Zacks Consensus Estimate.

Presently, we maintain a long-term Neutral recommendation on the stock.

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