Update: MONY to Buy Advest

Updated from 2:09 p.m. EDT

In a deal highly protective of its own stock price, MONY Group (MNY Quote) said Thursday that it would buy the Advest Group (ADV Quote).

Advest shareholders, who have bid the Hartford, Conn.-based regional brokerage's stock up 60% since June as they anticipated a takeover, would choose whether to accept cash, MONY shares or a combination of the two at the transaction's close, the companies said. The structure of the deal values Advest based on a 10-day average closing price of MONY shares, a device seemingly aimed at both maintaining MONY's stock price and guaranteeing a price range to Advest shareholders.

The staggered conversion rates create a so-called collar around a MONY share price of $35. At that average closing price, Advest shareholders would receive $31 a share. That would value the company at $275 million based on 8.88 million Advest shares outstanding and $16 million in pretax estimated costs for cashing out Advest employees' options.

But MONY's shares closed Thursday regular trading down 5/16, or 1%, at 33 7/16, while Advest Group finished down 2 1/4, or 7%, at 29 3/4.

No closing date has been set.

Based on the $35 share price, MONY plans to finance the deal by issuing around 3.9 million shares. Depending on whether Advest shareholders choose to take cash, stock or both, the price will be adjusted on a pro rata basis to produce an aggregate purchase price consisting of 49.9% cash and 50.1% MONY common stock. The company said it expects to treat the transaction as a tax-free reorganization.

Advest, which operates in 15 states and in Washington, D.C., manages around $30 billion in client assets. It has aggressively pushed its staff of 500 retail advisers to offer full-service financial planning in its retail network.

Impact of Pricing Formula
Average MONY Price per Share during Measurement Period
	$24.50	$28.00	$31.50	$35.00	$38.50	$38.50	$38.50
Implied ADV Price per Share
% Change of MONY Price per Share from $35.00	(30.0%)	(20.0%)	(10.0%)	0.0%	10.0%	20.0%	20.0%
MONY Share Component of Formula	0.498x	0.498x	0.443x	0.443x	0.443x	0.406x	0.406x
Value of MONY Share Component of Formula	$12.21	$13.95	$13.95	$15.50	$17.05	$17.05	$18.47
Fixed Component of Formula	15.50	15.50	15.50	15.50	15.50	15.50	15.50
Implied ADV Price per Share	$27.71	$29.45	$29.45	$31.00	$32.55	$32.55	$33.97
Totals Based on 8.882 million ADV Shares
Total After-Tax Deal Value ($ in millions)	$246	$262	$262	$275	$289	$289	$302
Aggregate Value of Cash Paid ($ in millions)	123	131	131	137	144	144	151
Aggregate Value of MONY Stock Issued ($ in millions)	123	131	131	138	145	145	151
Number of MONY Shares Issued	5.03	4.68	4.16	3.94	3.76	3.45	3.32
.443 MNY share component is fixed at MNY average share price between $31.50 and $38.50Price per share to ADV holders is fixed at $32.55 for MNY average share price between $38.50 and $42.00 Price per share to ADV holders is fixed at $29.45 for MNY average share price between $28.00 and $31.50 Fixed MNY share component of .406 for MNY average share price above $42.00 Fixed MNY share component of .498 for MNY average share price below $28.00

Analysts say that sales network is an attraction for MONY. "That's a very difficult sales force to build," said Elizabeth Malone, an analyst for Friedman Billings Ramsey. "Through this acquisition, they're able to do it more efficiently."

Malone rates MONY shares buy, and her firm has done no underwriting for MONY.

MONY told analysts in a conference call Thursday that it expects to raise $340 million in new assets under the new management as a result of the deal. While the company will likely benefit from selling MONY products through Advest brokers, "I wouldn't view that as a conservative estimate," said Tom Gallagher, an analyst for Wasserstein Perella Securities. He noted that the company's financial planners cater to what Advest calls high net worth, high-income individuals.

"Here's the catch," he said. "There's really a select group of funds that tend to be sold to that market. It may not be as easy a cross-sell as you might imagine."

While Advest generates the bulk of its revenues from commissions on securities transactions, around 30% of revenues come from mutual fund sales and around 8% come from insurance sales, according to recent filings with the Securities and Exchange Commission. MONY is best known for its life insurance and annuity instruments.

Advest has quietly let its investment banking division slip away in the months prior to the acquisition. A month after it named a new chief for its investment banking division and vowed to compete against rival regional banks, Advest has lost a dozen bankers, or more than half the unit's professional staff, according to people close to the company.

Both analysts agreed that MONY plans to focus on building and utilizing Advest's sales group and is likely unfazed by the investment banking unit's dissipation.

In addition to retiring $16 million worth of options, MONY said it will spend $60 million to retain key Advest financial advisers. In a separate conference call, company officials told members of the investment banking division that no incentive plan will be offered, according to people in the division.