Updated from 9:49 a.m. EDT
, the U.K.-based financial services firm, said Monday that it will buy
United Asset Management
for about $1.46 billion in cash, continuing the recent
trend of deep-pocketed Europeans snatching up U.S. fund companies.
Shares of UAM closed up 16%, or 3 1/4, at 23 13/16 after reaching a 52-week high of 24 1/4. In Monday trading on the
London Stock Exchange
, shares of Old Mutual settled down 0.5 pence to 154 pence.
Under the terms of the agreement, Old Mutual will pay $25 a share for UAM, a 22% premium to UAM's closing price on Friday of 20 9/16. In addition, UAM has net debt of $769 million which will be assumed or refinanced.
The acquisition of Boston-based UAM, which managed $188 billion worth of assets as of May 31 through a group of operating firms, will increase Old Mutual's assets under management to about $275 billion.
The deal is expected to be completed by the end of the year.
It is not surprising that UAM has been taken out. "The writing was on the wall," said Alexander Paris Jr. of
Barrington Research Associates
. "It's been underperforming in terms of its stock price and relative to client cash flows. It's had negative client cash flow for the past five years, which is a pretty poor performance during these boom times." He rates UAM a long-term buy and his firm does not participate in underwriting.
Monday's deal "will provide a significant leg up for Old Mutual in the U.S, but it's got its work cut out for it, to reverse the negative cash flow," Paris commented.
London-based Old Mutual, best known for its life insurance business which is the largest in South Africa, demutualized and went public in July 1999. Since then, it has focused on expanding its asset management businesses in Europe and the U.S.
Old Mutual was not the only European entity making eyes at American asset managers. Fund companies are receiving advances from a range of asset managers, brokers, banks and insurance firms on both sides of the Atlantic. But most American banks, which seek and need the steady revenue growth generated by fund companies, are losing out to more aggressive suitors.
There have been a spate of deals in just the past few weeks. Last Friday, France's
CDC Asset Management
said that it
plans to buy Boston-based asset manager
for $1.9 billion in cash. Earlier this month, U.S. fund manager
Liberty Financial Companies
announced it would
pay $450 million for
Wanger Asset Management
, which manages $7 billion in assets.
, Italy's second-largest banking group, spent $1.2 billion in cash on the
( PIOG), while German financial giant
finalized its purchase of
for $3.3 billion.
"Generally, asset managers are undervalued relative to the market and the cash flow they produce," Paris said. On average, before the deals of the past few weeks, U.S. asset managers have been trading at 14 times to 15 times 2000 earnings estimates and at 12 times to 13 times 2001 estimates. That is a 50% discount to the
In addition, the U.S. market for asset management is huge. "Financial companies from Europe and elsewhere would rather buy than build at these prices," Paris added, referring to the usual strategies followed by asset managers of acquiring a firm or building an operation of its own.