BlackRock avoids accidental takeover of Australian engineering company

BlackRock has avoided being forced to make an embarrassing takeover offer for an Australian engineering company after accidentally buying too much stock.

The world's largest asset manager ended up holding 20.8 per cent of Monadelphous Group, above the 20 per cent threshold that requires an investor to make an offer for the whole company under Australian stock market rules, after a one-day buying spree.

A series of BlackRock entities bought 8.6m shares in Monadelphous, pushing the share price up 25 per cent, on March 20, the day the Perth-based company was demoted from the S&P/ASX 100 index of blue-chip stocks under a quarterly rebalancing.

In a filing to the Australian Securities Exchange, BlackRock admitted it had no intention of buying more than 20 per cent of the company.

In a statement to FTfm, BlackRock laid the blame with unnamed third-party index providers that compile the benchmarks underlying some of its dividend income funds. It claimed these providers had seriously underweighted Monadelphous for two years, meaning BlackRock had to buy a lot more stock when this error was corrected.

"Monadelphous's stock was reweighted across multiple indices by major index providers on March 20, correcting for previous mis-underweightings, which led to this stock's exposure more than doubling in some indices. As a result, the firm rebalanced its weightings in line with this correction, resulting in the firm briefly owning more than 20 per cent of the stock," BlackRock said.

"Our internal controls identified the issue, we reported it to the regulator and disclosed it to the market and the company. We also sold down our position by less than 1 per cent to take us below the 20 per cent threshold."

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The incident is the latest in a series of skirmishes with regulators for BlackRock. Earlier this month it was handed a record €3.25m fine by Bafin, Germany's financial regulator, for misrepresenting its stakes in many of the country's largest companies.

BlackRock said it approached Bafin "regarding previously disclosed voting rights disclosures" that were either incorrect or late. In September 2014, it had restated its holdings in 48 German companies and amended information on its voting rights.

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Last year Consob, the Italian regulator, fined the US fund house €150,000 for market manipulation. Consob said BlackRock provided a "false and misleading" statement during the eurozone sovereign debt crisis in late 2011 when it erroneously said it had cut its stake in UniCredit shortly before the bank launched a rights issue.

Investors took fright after BlackRock seemingly sold off large parts of its stake in UniCredit. Consob said the false information was provided by two employees at BlackRock Investment Management UK.

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