New York Morgan Stanley said on Tuesday it will sell its retail asset management business, including the Van Kampen division, to money manager Invesco Ltd. for $1.5 billion in a move to focus on institutional clients.
The deal, which includes $500 million in cash and 44.1 million shares, will make Morgan Stanley Invesco’s largest shareholder, with a 9.4 percent equity stake. It boosts Invesco’s assets under management by $119 billion to about $536 billion.
New York-based Morgan Stanley said the sale allows it to focus on institutional clients such as pension plans, endowments, sovereign wealth funds and central banks, among others.
“By taking a minority interest in Invesco, Morgan Stanley will be able to realize significant value in partnership with a world-class player,” said Morgan Stanley Co-President James Gorman, in a statement. “In addition, this transaction will mitigate certain affiliated product sales restrictions faced by Van Kampen portfolio managers since the closing of the Morgan Stanley Smith Barney joint venture.”
The transaction, which has been approved by the boards of both companies, is expected to close in mid-2010.
At closing, Invesco will have about 700 investment professionals across all major global markets. Chief Financial Officer Loren Starr said the company expects the deal to add 11 percent to profit in the first 12 months after closing.
Despite the recent market rebound, Atlanta-based Invesco has continued to be hurt by sharply falling markets in 2008 and early 2009 that reduced the value of the assets it manages for retail, institutional and wealthy clients around the world. The company’s second-quarter profit shrank by nearly 54 percent, as the value of the assets the company manages declined, eroding investment-fee revenue.
As of September 30, assets under management totalled $417 billion, up slightly year-over-year. Invesco is slated to report results for the third quarter on Tuesday before the market opens.
In the second quarter, Morgan Stanley’s asset management operations reported a slightly wider pre-tax loss of $239 million. Assets under management at June 30 tumbled to $361 billion from $579 billion a year earlier. The decline reflected net customer outflows of $121.5 billion over the course of the year, mainly in the company’s money market and long-term fixed income funds.
Going forward, Morgan Stanley said its investment management group will include several institutional-focused businesses, including a long-only business (equity and fixed income), a direct hedge fund business, and a fund of funds business. It also will include a liquidity business and a merchant banking business, with the bank’s real estate, private equity and infrastructure units.
In Japan, Morgan Stanley Investment Management’s (MSIM) equity management operations will be sold to Invesco as part of the transaction, but the bank will retain its fixed income investment team and a sales and client service team to serve Japanese investors.
The deal marks the latest in a string of money manager takeovers of bank assets. Bank of America Corp. last month sold the long-term asset management business of its Columbia Management unit to Ameriprise Financial Inc., a financial planning services firm based in Minneapolis, for up to $1.2 billion in cash. And in June, British bank Barclays PLC agreed to a $13.5 billion offer from U.S. investment manager BlackRock Inc. for its asset management arm, Barclays Global Investors.
Van Kampen President and CEO Jerry Miller said in a statement on the Van Kampen Web site that Invesco and Van Kampen Investments will operate separately until the deal closes. Invesco will be counting on Van Kampen clients to stick with the firm through the transition, and Miller’s statement sought to reassure investors of the firms’ shared investment strategies.
“Our organizations have complementary investment strengths, product line-ups, business capabilities, firm cultures and shared values,” Miller said. “We anticipate a fruitful partnership with a common goal to even better serve our mutual clients.”
Shares of Atlanta-based Invesco Ltd. closed Monday up 37 cents at $23.12, and jumped $1.08, or nearly 5 percent, to $24.20 in aftermarket trading. Morgan Stanley shares gained 12 cents to finish at $33.11 and rose 22 cents after-hours.