Franklin, Templeton Join Forces : Bonds: The $913-million merger would create the largest publicly traded, independent mutual fund company.
Mutual fund pioneer Sir John M. Templeton announced Friday that he will merge his global empire with Franklin Resources Inc. in a $913-million deal that creates one of the world’s top money management concerns.
The proposed merger, which is expected to be completed in November, would create the largest publicly traded, independent mutual fund company in the United States, with combined assets of about $87.8 billion, the companies said in a joint statement.
The 79-year-old Templeton, a Rhodes Scholar and British citizen who was knighted in 1987, has been an investment adviser since 1940 and launched his first mutual fund in 1954. The Tennessee native said the merger is designed to ensure stability for his clients and investors after his career ends.
“(Now) people will stop asking me, ‘What’s going to happen to my investment when John Templeton dies?’ ” Templeton, who is chairman of Templeton, said from his offices in Nassau, the Bahamas.
Under the deal, the Templeton company, ranked 26th in U.S. funds, will become a wholly owned subsidiary of San Mateo, Calif.-based Franklin, which has the nation’s fifth-largest mutual fund complex. Templeton will retain its name and management, as well as investment control over its funds.
The acquisition creates the world’s largest independent, publicly traded mutual fund concern as measured by total assets under management. Overall, Franklin, with a combined $87.8 billion in managed assets as of June 30, would be about as large as Vanguard Group, the No. 3 mutual fund company.
Fidelity Investments is the biggest mutual fund concern with $158.1 billion assets under management as of June 30, according to Strategic Insight, a consulting firm. Merrill Lynch Asset Management is No. 2 with $106 billion.
Analysts said the deal combines Franklin’s strength as a provider of bond funds with Templeton’s broad international investments and expertise. Also, Franklin is viewed as a strong marketer that could help Templeton increase sales.
“You have both the investment reputation as well as the marketing intelligence, and that can work very well together,” said Avi Nachmany, an analyst at Strategic Insight.
Mutual funds are collections of securities--stocks or bonds--purchased by many investors whose money is pooled. By purchasing groups of securities, investors minimize the risks associated with owning individual stocks.
Despite the growth and the increasing costs of marketing mutual funds, analysts do not expect the Franklin-Templeton merger to usher in a wave of consolidation in the industry, which boasts about 400 companies and nearly 4,000 different funds.
Many industry executives see the next growth area for mutual funds overseas, where Templeton already is a known quantity.
“They are the pioneers in international investing,” said Greg Johnson, Franklin’s vice president for marketing. “Should growth in Continental Europe accelerate, you’ve got the right firm with the right name that’s been there.”
Templeton executives said more than 50 companies in recent years expressed interest in a merger or takeover--but that was due largely to John Templeton’s publicly stated desire to resolve the company’s future before he turns 80.
Franklin will pay for Templeton with $220 million in cash, a $341-million bank loan and $150 million in subordinated debt to be sold to institutional investors.
The deal also includes $158 million that Templeton will pay to its shareholders as a 5.4% premium on their stock, and $90 million being invested by top Templeton officials in Franklin. Minus transaction expenses of $46 million, the deal is valued at $913 million.
Franklin rose $2.75 Friday to close at $29.875 a share on the New York Stock Exchange. Templeton manages 78 mutual funds worldwide, 19 of them distributed in the United States, and has a total of $21.3 billion in assets under management. The company has 13 offices in 10 countries.
