U.S. investment bank Morgan Stanley is in serious talks to buy a controlling stake in institutional money manager BlackRock Inc., financial news network CNBC said Friday.
A Morgan Stanley spokesman said the bank does not comment on market rumors or speculation. BlackRock spokeswoman Kathleen Baum declined to comment.
BlackRock shares rose more than 8 percent Thursday to a record intraday high of $120.74 on the New York Stock Exchange. The stock, up more than eightfold since its 1999 initial public offering, closed at a record $119.35, giving BlackRock a market value of more than $7.6 billion.
Morgan Stanley Chairman and Chief Executive John Mack, who took over at the bank last June, has made it clear he is interested in making acquisitions in a number of businesses to boost earnings and revenue growth.
The company is particularly interested in acquiring hedge fund managers and other alternative investments, one of the fastest growing businesses in financial services, he said at a November investment conference.
Potentially helping Morgan Stanley, Mack said, is that regulatory changes forcing funds to invest in infrastructure may prompt some managers to sell themselves.
Morgan Stanley in November reportedly offered to buy $5 billion hedge fund FrontPoint Partners, but a deal never materialized because the parties couldn't agree on a price.
All Wall Street firms are keen on expanding their fund management businesses, which generate high returns and dependable revenue that can offset more-volatile investment banking income.
J.P. Morgan Chase & Co., for example, acquired a majority stake in Highbridge Capital Management in 2004.
If Morgan Stanley reached an agreement with BlackRock, Mack would be adding one of the fastest-growing money managers. That would help the company revive an asset management division that in recent years has failed to keep pace with its trading and investment banking businesses.
Since it was founded by Chairman and Chief Executive Lawrence Fink in 1988, BlackRock has grown rapidly to become one of the largest fund management companies in the United States. In the fourth quarter, assets under management rose 5.8 percent to $452.7 billion.
BlackRock on Thursday posted a 46 percent gain in fourth-quarter earnings, capping a year when the company earned $243 million. Revenue excluding performance fees of $168 million rose to $1.02 billion.
BlackRock forecast continued strong performance in 2006, with profit seen rising 18 percent.
Yet one analyst — from Morgan Stanley — said the stock price may be too rich.
"While BlackRock continues to post strong flows, solid earnings growth and a healthy pipeline, we remain cautious on valuation," analyst Chris Meyer said in a note Thursday. Excluding performance fees, BlackRock shares trade for 26 times expected 2006 earnings, "too rich for our blood despite their good growth."
That said, Meyer raised his share-price target by $15 to $105 and maintained his "equal-weight" rating.
Pittsburgh-based PNC Financial Services Group spun off BlackRock to the public in 1999 and retains a majority stake of about 62 percent of fully diluted shares. PNC officials declined to comment.
Morgan Stanley courted Fink last year at a time the firm was searching for executives to replace former CEO Philip Purcell. Later there was speculation that the bank wanted Fink to join as corporate president or head of asset management.