Barclays in exclusive talks to sell iShares to CVC for £3bn

Barclays is hoping to secure a sale of part of its iShares exchange-traded fund unit to the London-based buyout firm CVC by the end of this week for about £3bn, as it shores up its capital reserves after yesterday rejecting the government scheme to insure toxic debt.

The bank, which last week successfully passed an evaluation by the Financial Services Authority of its capital funding levels and earlier this week said it would not take part in the Government's asset protection scheme, has now narrowed the field of bidders for its iShares exchange-traded fund unit, which it has been trying to sell for as much as $6bn (£4bn).

The bank has now entered exclusive talks with CVC. Barclays, which only announced it was looking to sell the unit last month, had until yesterday also been in talks about a sale of iShares with other suitors including Bain Capital, Goldman Sachs and a consortium of buyout firms including Hellman & Friedman of the US and London-based rival Apax.

While the price tag of between $5.5bn and $6bn had been mooted previously, the current discussions with CVC do not include the share lending unit of the business, which was part of the package offered for sale and had been included in several of the other bids. This business will instead be amalgamated into Barclays Global Investors, hence the lower CVC bid value.

Unlike its rivals Lloyds and Royal Bank of Scotland, Barclays is raising cash in the market to avoid government support, and any influence that would give Westminster.

"It is quite clear they are selling the family silver, but if it avoids the need to take government capital and cede control to the Government or any third party, that will be a long-term good thing," said Alex Potter, an analyst at Collins Stewart, who added that the £3bn mooted would be "a good price" for Barclays.

While £3bn may look like a huge deal for a buyout firm in today's debt-starved landscape, Barclays is offering a so-called vendor loan that could reach as much as 80 per cent of the value of any bid, to help CVC both put up the money needed and meet its return targets.

A successful conclusion would mark a rare private equity acquisition in the current market, where most are more concerned with using their cash to prop up their existing portfolio businesses, which are in many cases buckling under huge amounts of debt in the economic slowdown.