Three Merrill Lynch & Co. municipal bond mutual funds recently filed with the Securities and Exchange Commission seeking to merge with similar BlackRock Inc. funds.
The open-end fund reorganization plans follow an agreement reached between the two firms in February to combine their asset management businesses.
According to the recent SEC filings, Merrill is seeking to merge its New Jersey, Pennsylvania, and short-term muni bond funds with similar BlackRock funds.
The move is part of an effort to consolidate the two firm’s fund lineups to eliminate redundancies and achieve certain operating efficiencies following the corporate merger.
“The larger net asset size of the combined fund should permit the combined fund to achieve certain economies of scale as certain costs can be spread over a larger asset base, and the larger combined fund may achieve greater portfolio diversity and potentially lower portfolio transaction costs,” the SEC filing for the New Jersey fund stated.
The fund mergers would also lower expenses for many shareholders, according to the filings. The costs associated with the reorganization will be absorbed by BlackRock and Merrill, or their affiliates, and will not be borne by shareholders, the SEC filings stated.
The planned fund reorganizations are conditional, and would only take place as long as the BlackRock-Merrill merger occurs as expected at the end the third quarter. Under the terms of that deal, Merrill would receive a 49.8% stake in the new firm, which would retain the BlackRock name.
The firms are now asking fund shareholders to vote on the proposed fund mergers.
Assets in Merrill’s New Jersey, Pennsylvania, and short-term muni funds total $106.1 million, $72.7 million, and $385.2 million, respectively. The BlackRock funds they would merge into total $169.2 million, $660.7 million, and $32.1 million, respectively.
The combined state-specific funds would be renamed the BlackRock New Jersey Municipal Bond Fund and the BlackRock Pennsylvania Municipal Bond Fund. The other fund would be called the BlackRock Short-Term Portfolio, which would be part of the BlackRock Municipal Bond Fund.
The SEC filings do not state who will serve as specific portfolio managers on the combined funds and a spokeswoman from BlackRock did not comment.
The two state-specific BlackRock funds are currently run by Kevin Klingert and James McGinley. The BlackRock short-term fund is run by William Henderson, Howard Downs, and Klingert, who oversees the firm’s muni bond team.
The Merrill New Jersey fund is run by Theodore R. Jaeckel, whereas the firm’s Pennsylvania fund is run by William R. Bock. The Merrill short-term fund is run by Peter J. Hayes.
“There has been no official word over here as to what the end result is going to be,” Jaeckel said yesterday. A spokeswoman at the firm did not return calls seeking comment.
David Kathman, an analyst at Morningstar Inc. in Chicago who covers some Merrill funds, said that based upon his conversations with the firm’s municipal portfolio managers, “they don’t seem to think that there’s a big danger that they’re all going to be dispersed to the wind.”
“They’ve done pretty well, unlike a lot of other Merrill funds,” Kathman said. “There may be a merger of the teams.”
Merrill had $4 billion in open-end muni bond fund assets under management as of Dec. 31, roughly $10.5 billion in closed-end muni bond funds, and an additional $30.9 billion in muni money market funds, according to Lipper Inc. BlackRock had approximately $1.5 billion, $5.9 billion, and $5.5 billion of assets in the three categories, respectively.
