The long-rumored deal has finally been sealed. Blackrock (BLK), the giant US asset manger announced this morning announced that it has agreed to aquire Barclays Global Investors from British banking concern Barclays PLC (BCS). The final price was settled at $13.5 billion, $6.6 billion of which will be in cash and the rest in a share exchange that will give Barclays a 19.9 percent stake in the new company – to be called Blackrock Global Investors.

The deal promises to remake the Exchange Traded Fund industry as BGI’s iShares unit – the world’s largest issuer of ETFs – is to be embeeded into what is now the world’s largest asset manager. The new firm’s scale – its $2.7 trillion in assets makes it larger than the Federal Reserve – could make for significant costs savings and lower expense ratios for investors. The new Blackrock is also likely to heat up the fixed income ETF market, as its now takes its fight with arch-rival Pacific investment Management Company (PIMCO) into the exchange traded space.

iShares holds 48 percent of the ETF market, and lists funds in 15 countries worldwide. It manages $290 billion of assets in the United States, and its iShares MSCI-Emerging Markets (EEM), iShares MSCI-EAFE (EFA), and iShares S&P 500 (IVV) are among the top 5 US listed funds. Blackrock’s moves into ETFs is another example of the dinosaurs of the mutual fund and hedge fund industries waking up to the future of asset management.

BGIs ETF unit had been sold individually last month to CVC Capital Partners, who agreed to pay $4.4 billion for the iShares business alone. That agreement included a “go-shop” clause under which Barclays had the right to shop for better offers until June 18th. Under pressure from British regulators to raise its capital ratios, the bank aggressively sought to unload its most profitable business for a higher price  in an effort to avoid a government nationalization that has already befallen rivals Lloyds Plc (LYG) and Royal Bank of Scotland (RBS). The premium Blackrock has paid should be enough to keep the firm solvent, as it will raise its Tier-1 capital ratio by a full 1.5 percentage points to a respectable 8%.

The deal also means big changes in Blackrock’s capital structure. Bank of America (BAC) will see its share in Blackrock Global Investors drop from 47 percent to 31, while PNC Financial Serivces (PNC)will have its share cut to 24.6 from 30. Unknown investors, widely considered to be wealthy Middle Easterners, have agreed to finance the deal in exchange for discounted shares in the new firm.

With Blackrock Global Investors set to be the world’s largest asset manager, cross town rival State Street (STT) – issuers of the SPDR brand of ETFs- will be pushed into second place. Both firms are based in Boston – America’s oldest financial center – which will undoubtedly see its influence in the industry rise.

The transaction is expected to be completed in December, and still must be approved by international regulators and the boards of both companies. CVC has the right to match the Blackrock offer, but is widely believed to settle for the $175 million dollar break fee stipulated in the previous sale’s contract.