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Henderson-Janus Merger Signals Fee Pressures Spurring M&A

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Henderson Group Plc’s merger with Janus Capital Group Inc. to create a $320 billion asset manager may be the precursor to a wave of consolidation in an investment industry grappling with increased regulation and competition.

“Others will say they wish they’d done it or they’ll contemplate it as well,” London-based Henderson’s Chief Executive Officer Andrew Formica said in a Bloomberg Television interview on Monday. “It’s the most appropriate thing for our clients, our employees and our shareholders.”

Active managers specializing in stock and bond picking have been losing market share to lower-fee passive investment firms in recent years. The combined firm, Janus Henderson Global Investors Plc, will still be a relative minnow compared with BlackRock Inc.’s $4.9 trillion of assets under management and Vanguard Group’s $3.5 trillion.

BlackRock’s Laurence D. Fink said in May that he expects to see consolidation as firms struggle to beat benchmarks and regulation favors index strategies. Analysts from Jefferies Group LLC and Cantor Fitzgerald LP said Henderson’s deal will focus interest on more deals in the industry.

“The field is going to narrow,” Janus CEO Richard Weil said in an interview on Bloomberg TV. “We are not trying to be BlackRock or any of the huge ones, but the additional scale of assets under management allows us the opportunity to capture more earnings for our shareholders and make appropriate investments.”

Both Formica and Weil, whose firm is based in Denver, have sought to diversify their businesses through acquisitions, new fund offerings and overseas expansion. In 2014, Weil hired Bill Gross from Pacific Investment Management Co. to run its Global Unconstrained Bond Fund, which now has more than $1.5 billion in assets. 

“There are immediate headwinds for the industry,” said Alex Birkin, head of wealth and asset management at consultants EY in Europe. “The organic growth strategy is difficult and slow particularly in today’s environment, so if you want to take significant step in terms of growth quickly it’s your only option.”

Henderson and Janus were the day’s two biggest gainer’s on the 31-member Bloomberg index of of investment managers. Henderson’s shares surged 17 percent, the most since January 2009, to close at 270.70 pence in London. Janus rose 12 percent to $15.70 in New York, the biggest one-day gain since January 2015; it climbed as much as 19 percent intraday, the most since Gross was hired in September 2014.

Janus investors will receive 4.719 new Henderson shares for each share they hold. Henderson investors will own 57 percent of the new company, with 43 percent going to Janus shareholders. The deal is expected to close in the second quarter of 2017.

“This deal may kick off a round of merger speculation involving other asset managers such as Jupiter,” Cantor analyst Keith Baird said in a note to clients. Jupiter Fund Management Plc, whose shares rose as much as 6.2 percent in London trading, declined to comment.

Pre-Brexit Talks

Formica said talks with Janus started in February, before the British vote to leave the European Union which saw investors pull more money from U.K. funds than any equivalent period in the global financial crisis. Brexit “didn’t accelerate the deal, nor did it have any impact,” he said.

He will lead the merged entity as co-CEO with Weil, who will move to London, where the firm will be headquartered. It will have a market value of at least $6 billion and generate annual net cost savings of at least $110 million, the companies said in the statement. It is also expected to attract as much as 3 percentage points of additional net new money.

If the leadership relationship isn’t working out after a couple of years, “one of those guys will get out of the way,” Weil said in Monday’s Bloomberg TV interview with Erik Schatzker. “We made an arrangement with the board that they should start to look forward as to whether this co-CEO thing is appropriate or if there is a better way forward. Or if we should get some new person to take on the responsibility. We are in it to win it.”

Janus Henderson will be a U.K. tax resident and the firm is set to become one of the 50 largest asset managers in the world. Formica said that while the deal fits the description of corporate inversion, it will not reduce the tax bill in the U.S.

Japanese insurer Dai-ichi Life Holdings Inc., Janus’s biggest shareholder, will have a 9 percent stake in the combined company and plans to increase that to at least 15 percent. The firm will apply to have its primary listing on the New York Stock Exchange, because it offers greater liquidity, with a secondary listing in Australia to appeal to Asian investors, according to Monday’s statement. Janus Henderson will not trade on the London Stock Exchange because of the costs involved.

Henderson, named after its first client and founded in 1934, managed about 95 billion pounds ($122.6 billion) as of June 30. Janus, named for the two-faced Roman god, managed almost $195 billion.


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