Summary
PNC Financial Services Group, Inc. (PNC) filed an 8-K on October 5, 2006, to report the completion of a significant transaction involving its majority-owned subsidiary, BlackRock, Inc. The core of this report details the closing of the agreement where Merrill Lynch contributed its investment management business (MLIM) to BlackRock. This resulted in PNC's ownership stake in BlackRock decreasing from approximately 69% to about 34%. This change in ownership has material accounting implications for PNC. Effective September 30, 2006, PNC will no longer consolidate BlackRock's balance sheet but will account for its investment using the equity method. The report also highlights an increase in the carrying value of PNC's BlackRock investment and the recognition of a significant after-tax gain and increases to capital surplus, largely due to the transaction's value and accounting treatment for deferred taxes and employee stock programs.
Key Highlights
- 1Completion of the BlackRock and Merrill Lynch Investment Management (MLIM) transaction on September 29, 2006.
- 2PNC's ownership in BlackRock reduced from ~69% to ~34% post-transaction.
- 3PNC will now account for its BlackRock investment using the equity method, replacing balance sheet consolidation.
- 4The carrying value of PNC's investment in BlackRock increased by approximately $3.1 billion to $3.8 billion.
- 5PNC recognized an after-tax gain of approximately $1.3 billion and an increase to capital surplus of approximately $0.3 billion.
- 6A liability for deferred taxes of approximately $0.9 billion and an LTIP share obligation of approximately $0.6 billion were recorded.
- 7Thomas H. O’Brien resigned from PNC's Board of Directors to serve as an independent director and Chairman of BlackRock’s Nominating and Governance Committee.