March 31 (Bloomberg) -- Barclays Plc, the U.K.’s third- largest bank, said it’s in exclusive talks to sell the iShares exchange-traded funds unit to CVC Capital Partners Ltd. The sale price may be about 3 billion pounds ($4.3 billion), people familiar with the negotiations said.

Barclays will keep the division’s securities-lending operation, the London-based bank said in a statement today. Barclays will retain a 20 percent stake in iShares and may provide loans equal to about two-thirds of the purchase price to help finance the deal, said one of the people, who declined to be identified because the talks are private.

Selling iShares may help Barclays avoid tapping government funds after the bank opted out of the Treasury’s asset insurance program. Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc slipped into government control after taking taxpayer funds. The U.K. Financial Services Authority said last week Barclays has sufficient capital to weather the financial crisis.

“It looks like a good price taking into account that they are not selling all the business and will retain a stake,” said Colin Morton, who helps oversee $3 billion at Rensburg Fund Management in Leeds, England. “Some would argue they are selling the family silver, but they need their capital more than anything else.”

Barclays rose 0.7 percent to 150.2 pence as of 4:31 p.m. in London trading, after rising as much as 7.7 percent earlier. Officials at London-based CVC declined to comment.

Barclays Global Investors

IShares, which had 226 billion pounds under management at the end of last year, is the largest manager of funds that can be bought and sold like stocks. Exchange-traded funds typically track the performance of indexes such as the Standard & Poor’s 500. The unit is part of San Francisco-based Barclays Global Investors, which had 1.04 trillion pounds of funds under management at the end of 2008.

CVC started a team to invest in financial services companies in September, putting managing partner Jonathan Feuer in charge of the unit. The firm held talks last year to buy a controlling stake in RBS’s U.K. insurance assets, among them Churchill and Direct Line. RBS later abandoned the sale. CVC is investing about 16 billion euros ($21 billion) in leveraged buyout funds.

Other firms that had expressed interest in buying Ishares included Colony Capital LLC and Bain Capital LLC, two U.S. private equity firms; New York-based Goldman Sachs Group Inc.; and a group of LBO firms that included Hellman & Friedman LLC of San Francisco and London-based Apax Partners Worldwide LLP, according to people familiar with the discussions.

Robert Diamond

So-called key employees of BGI own options in the unit valued at more than 574 million pounds, Barclays said in its annual report published last week. Barclays President Robert Diamond has 100,000 options valued at 8.7 million pounds.

Barclays has said it will use the money raised by iShares sale to bolster its financial strength. The bank’s Tier 1 capital ratio, a measure of financial strength, is 6.7 percent, lagging behind government-owned RBS and Lloyds. Lloyds estimates the government’s asset-protection program will increase its core capital ratio to 14.5 percent, while RBS says its ratio will rise to 12.4 percent.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: March 31, 2009 11:36 EDT