Deals & People May 15, 2009

Barclays Reportedly Considering Broader BGI Deal

While considering selling its iShares unit to the CVC Capital Partners Group equity firm, Barclays has also received inquiries from other possible suitors for its Barclays Global Investors asset management business.
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Bloomberg reported inquiries for a broader deal from BlackRock Inc. and Bank of New York Mellon for a price analysts estimate at as much a $10 billion—more than double the $4.4 billion Barclays would be in line to get by selling iShares.

A deal negotiated for the iShares business gives Barclays until June 18 to receive other iShares offers. Barclays agreed April 9 to sell iShares to CVC Capital, a London-based buyout firm. The bank must pay CVC a $175 million break fee if it terminates the deal (see “Barclays Still Entertaining Suitors for iShares’).

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Barclays said Friday it had received “unsolicited interest” in BGI, as well as inquiries about iShares, since the CVC deal was announced, Bloomberg reported. There is “no certainty” the discussions will result in a deal, the London-based company said in a statement, without naming the potential bidders.

“Without doubt they are doing this to bolster capital ratios and convince people they don’t need more equity,” Richard Buxton, head of U.K. equities at London-based Schroders Plc, told Bloomberg. “But you end up with a less diversified business.’

Bloomberg said Barclays has shunned government funds, instead boosting capital by selling shares and assets after $18.6 billion of credit losses and writedowns during the global financial crisis.

BlackRock is the biggest publicly traded U.S. asset manager and oversees $1.3 trillion, mostly for institutions. BNY Mellon is the world’s largest custody bank and manages $881 billion of assets for clients through mutual funds and institutional accounts.

Compliance May 15, 2009

Retiree Health Care Waiver not Taxable Income

The Internal Revenue Service (IRS) ruled that an arrangement under which employees could give up the right to get retiree health benefits in exchange for a higher future pay rate does not represent a taxable event.
Reported by

That holding came in a private letter ruling, which only directly affects the individual taxpayer requesting the IRS opinion; the taxpayer is not identified in the publicly released document.

According to the IRS document, the employer’s retiree health insurance program gives employees a chance within 15 days of starting work to waive retiree health care in exchange for a future pay increase. Electing the pay hike does not change the pay rate for employee services already performed.

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Harry Beker, branch chief, health and welfare branch, Office of Division Counsel/Associate, who wrote the IRS letter, cited Section 1.451-2(a) of the Income Tax Regulations.That provision indicates that income, although not actually reduced to a taxpayer’s possession, is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

Beker said, however, that income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.

The bottom line, according to Beker: Employees working for the company requesting the private letter ruling are not to be considered as having received taxable income.

The IRS document is available here.

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