Franklin to Buy Heine Securities
Franklin Resources Inc. announced Tuesday that it has agreed to pay a minimum of $610 million for legendary stock picker Michael Price’s mutual fund company.
Franklin’s purchase of Heine Securities Corp. could reach as much as $800 million if Price meets certain incentive goals. The deal would give Franklin, the fifth-largest mutual fund company, a strong presence in U.S. stocks. Franklin is known for its international stock and U.S. bond mutual funds.
Price, 44, a value investor who is well-known for buying out-of-favor stocks, will remain for five years after the transaction is completed. The performance of his four Mutual Series funds, with $17 billion in all, ranks in the top 10% of all funds tracked by Lipper Analytical Services Inc., the fund research service, for the last 10 years.
San Mateo, Calif.-based Franklin is paying top dollar for the stock mutual funds. The purchase would help raise its profile in the fast-growing 401(k) market. About 11% of its $145 billion in assets is now in 401(k)s.
“This gives Franklin an important boost, because they were perceived to be weak in the retirement business,” said Burton Greenwald, head of BJ Greenwald Associates, a Philadelphia-based consulting firm. About 30% of Price’s assets are from retirement savings plans.
Price, who is the sole owner of Short Hills, N.J.-based Heine, would get a $550-million payment in cash and the balance in 1.1 million shares of Franklin Resources common stock, which he must hold for two years. Franklin stock rose $2.125 to $59.625 on Tuesday on the New York Stock Exchange.
Price will also earn an additional $96.25 million to $192.5 million if the amount collected in advisory fees increases between 12.5% and 17.5% over five years.
He also agreed to invest $150 million of the cash he would get from Franklin in his mutual funds and to keep a minimum balance of $100 million in the funds for five years.
With that commitment, Price “has a vested interest that the funds will perform well,” said Greg Johnson, head of marketing and sales at Franklin.
Price said Mutual Series shareholders, who must approve the purchase, should be glad. “I’ve committed to putting $150 million in Mutual. I’d feel good as a shareholder” with that kind of commitment, he said.
And after five years? “First of all, no one has longer than a five-year time horizon,” he said. “Secondly, I will transition the business in the next five years to my [investment] guys.”
The merger will allow Heine to improve research, investment management and client services yet remain autonomous, Price said.
Price joined Heine Securities 20 years ago to work under President Max Heine. He inherited Heine’s job after Heine died in 1988.
Current Mutual Series shareholders will be able to increase their holdings in the funds without paying additional sales fees. Investors who buy after the transaction closes, however, will be hit with so-called loads, Price said. Franklin’s funds are load funds, which are generally sold through brokers and insurers.
No date has been set for a shareholder vote.
