Sept. 30 (Bloomberg) -- Ameriprise Financial Inc. agreed to buy the Columbia stock and bond funds from Bank of America Corp. for as much as $1.2 billion in cash, the biggest purchase by the investment and insurance company since its spinoff from American Express Co.

The acquisition will include $165 billion in funds and individual accounts managed by Boston-based Columbia Management Group LLC, bringing Ameriprise’s assets under management to about $379 billion, the Minneapolis-based company said today in a statement. Ameriprise rose the most in six months.

Bank of America, which has received $45 billion in federal bailout money, including aid to Merrill Lynch & Co., was ordered by U.S. regulators in May to raise more capital as a cushion against potential losses on loans and investments. Ameriprise has sought to expand its money-management business, which includes the RiverSource and Threadneedle funds, since being spun off in 2005. It bought fund manager J&W Seligman & Co. last year for $440 million, adding $18 billion in assets.

“Columbia is a pretty good business and I think Ameriprise will benefit by it,” Richard X. Bove, a Lutz, Florida-based analyst for Rochdale Securities LLC, said in an interview with Bloomberg Radio.

Ameriprise rose $3.99, or 12 percent, to $36.33 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest increase since March 23. It has gained 59 percent this year, giving the money manager a market value of $9.26 billion. Bank of America fell 24 cents, or 1.4 percent, to $16.92.

Distribution Agreement

The final transaction price will be between $900 million and $1.2 billion, depending on net asset flows between now and the deal’s closing, which is scheduled for the first half of 2010. Fund shareholders and regulators need to approve the sale.

The sales price represents seven times the annual earnings before interest, taxes, depreciation and amortization of the businesses acquired, Ameriprise Chief Executive Officer James Cracchiolo said during a conference call with investors. Global asset-management acquisitions averaged about 9.8 times Ebitda in the first half of 2009, according to research published by Jefferies Putnam Lovell in New York.

“It would appear Bank of America didn’t get a full price in this market,” Geoff Bobroff, an independent fund consultant in East Greenwich, Rhode Island, said in an interview.

Bobroff said the fact that some of Columbia’s assets are sub-advised by other money managers, with whom them must split fees, may have helped lower the price.

The deal includes a five-year distribution agreement that provides Ameriprise access to clients of Bank of America affiliates, including U.S. Trust, Ameriprise said. Bank of America became the largest brokerage in the world when it bought Merrill Lynch on Jan. 1, with more than 20,000 advisers, according to the company.

Dennis Hopper

Cracchiolo said in an interview that the distribution agreement was a “very important” part of the overall deal. He said the Bank of America affiliates will generate about a third of sales in the integrated company.

Ameriprise, whose television advertisements feature actor Dennis Hopper pitching retirement products, managed about $220 billion of client money as of June 30, including $135 billion at RiverSource Investments LLC and $82 billion at London-based Threadneedle Asset Management Co. RiverSource, based in Minneapolis, runs the $4.6 billion Riversource Diversified Equity Income Fund and the $4.1 billion Diversified Bond Fund.

The acquisition “will help them expand distribution, not only of the Columbia funds, but also the RiverSource funds through the connection to Merrill Lynch,” Burton Greenwald, an independent mutual-fund consultant in Philadelphia, said in an interview.

The combination will create annual net savings of $130 million to $150 million, with about half of that being realized in the first year and “substantially all” of it in the second year, the company said. Cracchiolo said some savings would be created by cutting jobs. He declined to give a job cut figure.

Moore to Stay

Colin Moore, chief investment officer at Columbia, will fill the same role for the combined firm, Cracchiolo said during the conference call. Other employees that manage, sell and provide administrative support for the funds and separate accounts will stay as well. Columbia employs 900, according to Bank of America spokesman Scott Silvestri.

Columbia’s assets under management include $93 billion in equity investments and $72 billion in fixed-income. They encompass approximately $115 billion in mutual-fund investments and $50 billion in separately managed accounts for institutions and wealthy individuals.

Columbia runs the $10.1 billion Acorn Fund, managed by Charles McQuaid, which returned 31 percent this year through Sept. 15. That beat 72 percent of funds that also target companies of all sizes expected to show higher-than-average profit growth, according to data compiled by Bloomberg.

Beating Peers

The Acorn Fund was part of FleetBoston Financial Corp.’s $1 billion acquisition of Liberty Financial Co.’s asset-management unit in 2001, which oversaw $51 billion at the time, less than one-third the level of assets acquired by Ameriprise for about the same nominal amount. Bank of America bought FleetBoston for $47 billion in 2003.

Columbia’s funds, divided into broad investing categories, beat 53 percent of their peers on average in the three years ended Sept. 11. Funds that invest in both stocks and bonds performed best, beating 68 percent of balanced funds at other asset managers, according to Morningstar data. The firm’s domestic stock funds beat 53 percent of peers. Taxable bond funds did worst, beating 44 percent rivals.

Stress Test

U.S. regulators in May ordered Charlotte, North Carolina- based Bank of America to raise $33.9 billion after a so-called stress test of 19 top financial institutions to gauge their ability to withstand a prolonged recession. The bank had already raised $38 billion in capital, including $13.5 billion from a share offering, $9.5 billion by swapping preferred stock for common shares and $4 billion selling stock in China Construction Bank Corp.

Today’s deal doesn’t include Columbia’s money-market funds, which managed $120.2 billion as of July 31. Columbia was the ninth-largest U.S. manager of money-market funds as of July 31, according to Crane Data LLC in Westborough, Massachusetts.

“Bank of America continues to consider alternatives for the cash investments,” the company said in a statement.

Fitch Ratings Ltd. in New York affirmed its A rating for Ameriprise today with a negative outlook.

To contact the reporters on this story: Christopher Condon in Boston at ccondon4@bloomberg.net; Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

Last Updated: September 30, 2009 16:29 EDT