Barclays plc announced that it has sold its iShares exchange-traded fund division to CVC Capital Partners for US$4.4 billion.

The board Barclays said it has an agreement to sell the iShares business to Blue Sparkle LP, a new limited partnership established by CVC Capital Partners Group SICAV-FIS S.A. The transaction will generate an expected net gain of US$2.2 billion for Barclays, taking into consideration goodwill of US$1.4 billion.

The bank will provide US$3.1 billion in debt financing for the transaction, and Barclays has agreed to hold no less than 51% of the total financing for the first five years and may syndicate the remaining 49% after the first year. The remainder of the consideration will be funded by equity.

The firm said that the deal gives it the opportunity to “maximize value through the sale of a business which represents a distinct channel for Barclays Global Investors and which now has the scale, depth of client relationships and brand equity to continue to be successful on a standalone basis.” It also boosts the bank’s capital position by an estimated 54 basis points.

Under the transaction agreement, Barclays may solicit competing proposals for iShares and potentially other related businesses from third parties for 45 days. If it does come up with a better offer in that period, it would pay a break fee of US$175 million.

Also, termination rights exist for both parties in the event that there is a material change in the business before closing (expected by November) or if a separation plan for the businesses being sold is not agreed. Termination would entitle CVC to a payment of US$25 million. A fee of US$50 million or US$175 million will be payable by CVC or Barclays, respectively, if closing does not occur due to a material default of CVC or Barclays.

The transaction is subject to receipt of regulatory and other approvals. Pre-closing regulatory approvals are expected to be required in the U.S., UK, Germany, Ireland, Australia, Brazil, Canada, Mexico, Chile, Hong Kong, Japan and Singapore.

The majority of the employees working within the iShares business are expected to transfer with iShares as part of this transaction, Barclays said.

Commenting on the transaction, John Varley, group chief executive of Barclays, said, “This transaction realizes significant value for Barclays. iShares has experienced rapid growth over the past several years and has reached a point where it can develop further on a standalone basis. Barclays shareholders will benefit from a reinforcement of our capital base and an ongoing commercial relationship with iShares.”

IE