In the latest in a wave of foreign companies buying U.S. money managers, Los Angeles-based investment firm TCW Inc. agreed Wednesday to be acquired by French banking giant Societe Generale for more than $1.3 billion.
The deal unites one of the largest U.S. employee-owned money management firms and a Southern California financial powerhouse with one of Europe’s fastest-growing financial firms.
It also marks a new chapter in the career of TCW’s publicity shy chairman, Robert A. Day, who founded the firm in 1971 and shepherded its growth to its current status as a major player in the management of pension assets, with more than $80 billion under management.
TCW is the parent company of Trust Co. of the West, whose client list includes Boeing, Xerox, Hallmark, Eastman Kodak and the California State Teachers’ Retirement System. About a third of its holdings are assets of wealthy individuals.
The deal solidifies Day’s position as one of the richest men in Los Angeles, as he is the largest individual shareholder in TCW. It was not clear Wednesday how much he stands to gain financially from the deal. His net worth was estimated at $705 million last year by the Los Angeles Business Journal.
As part of the deal, TCW will retain its name, and there are no plans to reduce its staff of about 600 or relocate from its 35-story office tower in downtown Los Angeles, near Staples Center, the company said.
Day, TCW’s chairman and chief executive, will continue to run TCW with his existing management team, although Societe Generale will name two of its representatives to TCW’s board.
The giant money manager has been rumored since 1994 to be seeking a buyer or considering going public in an attempt to boost its position as the industry consolidates. In 1997, the company said it had evaluated 35 bids but couldn’t find a buyer that would pay the right price while leaving the company’s culture intact.
Day said the deal was a way to position TCW in what is quickly becoming a global asset management industry, adding that the firm would be the exclusive provider of Societe Generale’s various investment products to the U.S. market.
“The deal is completely unique in the way it’s structured,” said Day, 57. “We will be able to sell their products to our customers and they will sell ours to their clients in Asia and Europe.”
In an interview Wednesday, Day said he was approached by Societe Generale, a privately held company based in Paris, through investment banking firm Lehman Bros. about three months ago. Day said it was easier to merge with a foreign firm because each firm served different markets and there was little overlap.
The deal is the latest in a wave of cross-border mergers between money managers and is expected to help Societe Generale expand its asset management business in the U.S.
European financial-services giants have made several deals in the U.S. in recent years, including Sanford C. Bernstein & Co.'s sale to Alliance Capital Management Holding, which is majority owned by a unit of France’s AXA Group. There also was Allianz of Germany’s purchases last year of two California money managers, Nicholas-Applegate Capital Management and Pimco Advisors.
“Asset management is becoming a global business. The recent flurry of deals reflects that,” said Dean Eberling, an analyst at Keefe, Bruyette & Woods in New York.
Eberling said the “smart transactions” in the asset management business will let the acquired company have a lot of autonomy since this business is heavily dependent on human capital and retaining employees will be very important.
In the TCW deal, about 30% of the company will remain employee-owned, a smart move, analysts said, in that it will help retain top management.
Sherry Reser, spokeswoman for the state teachers’ retirement system, which has about $332 million of its $105 billion in assets invested with TCW, said they would monitor the ownership change at TCW.
“We will probably want to meet with them and talk about the changes,” she said.
The deal will be done in two stages. Societe Generale said it will exchange $880 million of its stock once the deal closes for a 51% stake in TCW, giving TCW shareholders a 3.3% stake in Societe Generale.
Between 2003 and 2006, Societe Generale will buy an additional 19% of TCW. The price of the second transaction has not been determined, but the total value of the deal would be about $1.3 billion if the stock exchange ratio remains the same as the first part of the deal.
Societe Generale will pay a price equal to about 2.3% of assets for TCW, a price analysts called “full,” but not out of line.
Day may not seek the spotlight, but he is active politically and socially, both in Southern California and nationwide. He is chairman and president of the W.M. Keck Foundation, the second-largest foundation in Los Angeles, which gives about $75 million in grants each year.
He is the grandson of Superior Oil founder William M. Keck on his mother’s side and Addison Day, president of Los Angeles Gas Co., on his father’s side.