What PNC Financial Sale Means for BlackRock

Wide-moat BlackRock BLK and no-moat PNC Financial Services Group PNC have announced that the latter intends to eliminate its 22.4% stake in the asset management firm through a registered secondary offering and related share buyback by BlackRock. PNC Financial currently holds 34.8 million shares (comprises common stock and Series B preferred shares) of BlackRock, worth approximately $17 billion (based on yesterday's closing price of $493.11 per share), of which the asset manager will be repurchasing $1.1 billion of common stock directly from PNC Financial (at a purchase price equal to the net price per share that the bank receives in the secondary offering). With just 118.2 million of BlackRock's 154.3 million shares outstanding at the end of April 2020, the sale of some 32.6 million shares (which assumes the asset manager picks up around 2.2 million shares as part of its repurchase effort) will have a dampening effect on the company's stock price in the near term. That said, with the shares trading at 99% of our current fair value estimate of $500 per share, it would take a meaningful sell-off in the shares to get them into more attractive territory for long-term investors. While this ends what has been a two and a half decade investment in the asset manager on PNC Financial's part, the bank, in our view, is likely (based on past sales of similar sized positions by both Bank of America and Barclays) to end up with an offering price that is not overly discounted (and likely ending up closer to our fair value estimate than not), which would be good for both PNC Financial and BlackRock's shareholders. The deal also removes the potential for future large-scale sales that could potentially impact BlackRock's common stock longer term. In the end, we believe that more public float is a good thing for both BlackRock and its shareholders. We are leaving our fair value estimate and moat rating for the asset manager in place.

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