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BlackRock's Sale Will Line PNC's Pockets


PNC Financial Services Group (PNC) is a big winner in the deal between Merrill Lynch (MER) and investment manager BlackRock (BLK) announced on Feb. 15. Before the agreement, PNC owned 70% of BlackRock's shares and had 84% of the voting rights. PNC shares have shot up from 55 in October, when rumors first swirled that it might cut its BlackRock stake, to 69 on Feb. 15. Merrill edged out Morgan Stanley (MWD) in making a deal with BlackRock. PNC halved its BlackRock holdings, to 35%. PNC says it will record an aftertax gain of $1.6 billion. That gives it the flexibility, says PNC, to repurchase shares. Gary Townsend of Friedman, Billings, Ramsey Group figures the deal could boost PNC's pro forma earnings to as much as $5.62 a share in 2006 and $6.22 in 2007, up from his pre-deal forecasts of $5.12 and $5.67, respectively. The stock trades at 12 times his new 2006 estimate. PNC is worth 74 a share on a sum-of-the-parts valuation, says Townsend, who rates the stock "outperform."

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial


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