US holding firm PNC Financial Services Group Inc is reportedly offloading its entire stake in investment management firm BlackRock Inc. The move will net the holding company an estimated $17 billion, funds it says will be used to seize new investment opportunities, while also helping it shore up its finances to survive the economic downturn caused by the coronavirus pandemic.
The Pittsburgh-based firm revealed its plans on Monday, stating that it was high time that it cash out on one of its more lucrative bets. PNC plans to sell its stake in the world's largest asset manager through a public offering. PNC purchased its stake in BlackRock more than 25 years ago, from its chairman and CEO, Steve Schwarzman. Years after the purchase, Schwarzman later called the transaction a "heroic mistake."
PNC currently owns a 22 percent stake in BlackRock's outstanding shares, making it the firm's largest shareholder. According to PNC, Blackrock has agreed to directly buy back up to $1.1 billion worth of its shares. The rest of the shares will then be offered to other investors through a public secondary offering, with Morgan Stanley, Evercore ISI, and Citigroup acting as bookrunners.
PNC chief executive officer, William Demchak, mentioned in a statement that it was time for the company to unlock the value of its previous investment. He added that the funds should further enhance the company's balance sheets and allow it to take advantage of new investment opportunities provided by the disrupted markets.
The sudden decision to offload its stake has surprised most analysts, particularly after PNC had long credited BlackRock for providing diversified earnings. However, PNC may be looking to increase its liquidity for possible new acquisitions in the short-term, as its competitors continue to struggle with the prospect of increasing loan defaults. PNC is likely positioning itself to make new and more lucrative bets in the middle of the global industry shuffle due to the economic downturn.
Edward Jones analysts, Kyle Sanders, pointed out that PNC is taking advantage of the current market disruptions but it will need a massive amount of money to grab all of the available opportunities.
PNC had made similar moves in the past, ones that may end up being massively profitable in the long-term. During the 2008 global financial crisis, PNC had acquired National City Corp, a transaction that had proven to be quite lucrative after the economy had recovered. Sanders stated that PNC may be looking for a similar opportunity, likely in the form of acquiring another regional bank.
