Merger Rumors Lift Financial Issues
Expectations of another wave of takeovers in the investment management business drove up a number of stocks Tuesday, after several days of profit taking.
The financial sector in general was fueled by two major developments:
* The resignation of Evan G. Greenberg, American International Group Inc.’s president and chief operating officer and the son of the insurance giant’s chief executive, spurred rumors that AIG might be preparing to make a major acquisition.
* Franklin Resources, parent of the Franklin and Templeton mutual funds, led a rally in mutual fund management stocks after Reuters reported that German insurance titan Allianz may be interested in buying Franklin. Franklin shares (ticker symbol: BEN) rose $1.63 to close at $43.66 on the New York Stock Exchange.
Reuters said Allianz also is holding preliminary talks with smaller fund firms, including private San Diego-based Nicholas Applegate, Overland Park, Kan.-based Waddell & Reed Financial and Rye, N.Y.-based Gabelli Asset Management.
Waddell gained $1.13 to $37.25, while Gabelli fell 75 cents to $26.38. Among other fund companies, T. Rowe Price (TROW) rose $2.75 to $47.69 and Amvescap (AVZ), parent of Invesco funds, rose $1.69 to $104.25, all on the NYSE.
The resignation of Evan Greenberg, 45, at AIG leaves the largest publicly traded U.S. insurance firm without a clear successor. AIG Chief Executive Maurice Greenberg, who is 75, had made it clear he expected his son to succeed him.
The firm said only that Evan Greenberg left “to pursue other interests.”
He had followed an unlikely path to the top. After skipping college and working for three years as a cook, a bartender and at other odd jobs, he joined AIG in 1975 and rose rapidly through the ranks.
His promotion to president in 1997 signaled that his father thought him capable of running a company with operations in 130 countries.
Although some analysts questioned Greenberg’s effort to keep the top job in the family, they said board members have been reluctant to second-guess a CEO who has presided over a ninefold increase in the company’s stock price over the last decade.
Some analysts said Evan Greenberg’s decision to leave might signal that the company is moving toward a major acquisition.
“What it means is a deal is brewing,” said James Ellman, a portfolio manager at Merrill Lynch Investment Managers. Ellman said Evan’s resignation could be a prelude to an acquisition in which the target company’s CEO becomes AIG’s next leader.
An AIG spokesman declined to comment. The company’s stock (AIG) rose $1.75 to close at $90.13.
AIG, whose SunAmerica retirement investing unit is based in Los Angeles, is known to be interested in expanding its investment management and mutual fund units.
Indeed, analysts believe AIG is bidding against Allianz for the Nicholas Applegate franchise.
Another company mentioned as a potential target for AIG is Marsh & McLennan (MMC), an insurance brokerage firm that also owns Putnam Investments, the fourth-largest U.S. mutual fund company.
Maurice Greenberg knows Marsh’s CEO well: It’s his other son, Jeffrey Greenberg, 49, who left AIG in 1995 for Marsh.
Marsh & McLennan shares rose $1.47 to $124.60 on Tuesday.
Conceivably, Franklin--which manages $236 billion--and all other money management groups are fair game for AIG as well.
“There are fewer and fewer of these companies that you can buy and that makes the premiums higher,” said Peter Starr, analyst with research firm Cerulli Associates.
Overseas financial institutions such as Allianz are interested in U.S. fund managers to gain investment expertise and U.S. stock funds to sell to their customers.
U.S. insurance and securities firms, for their part, are attracted by the lucrative management fees that fund companies earn.
“It’s tough to build up from being primarily an insurance company to a full-service financial services firm,” Starr said. “AIG is missing a retail presence, so an Applegate or a Franklin Templeton would be very useful.”
Already this year, Allianz bought Southland-based bond fund manager PIMCO; France’s CDC Asset Management took over Nvest Cos.; Italy’s Unicredito Italiano purchased Pioneer Group and London-based Old Mutual bought United Asset Management.
For AIG, there’s also another possibility: Despite its market value of $208 billion, it could become a target of another Wall Street giant in an era when no takeover is too big.
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Franklins Rebound
Shares of mutual fund giant Franklin Resources (ticker symbol: BEN) have rebounded this year, fueled in part by rumors it could be a takeover candidate.
Franklin Resources shares, monthly closes and latest on the New York Stock Exchange
Tuesday: $43.66, up $1.63
Source: Bloomberg News
