Do as I say, not as I do. Asset managers love to decry mergers-of-equals with fudged governance. Yet that's the structure Janus Capital and Henderson chose for the $6 billion fund management tie-up they unveiled on Monday.
The deal is actually pretty smart -- if the awkward governance arrangements can be made temporary.
Two questions keep asset management bosses like Janus's Dick Weil and Henderson's Andrew Formica awake at night: how do I find new funds to sell to my existing clients? And how do I sell my existing funds to new clients?
The standard solution is to hire stars, like Bill Gross, blow money seeding aspiring new fund managers (often ex-traders from investment banks) and build sales teams in foreign markets. This is slow, expensive and risky.
Combining Denver-based Janus with London-based Henderson addresses both nightmares. The duo get new product and established sales forces in each other's core markets. There's no magic offering the pair can provide jointly that clients couldn't have obtained from each separately, but it's plausible that "Janus Henderson Global Investors" will take some market share through cross-selling. The projection is that new money flows will climb a modest 2 to 3 percent.
There will be some cost savings too from scrapping parallel efforts attacking each other's markets. These are put at $110 million annually, worth at least $800 million when taxed and capitalized.
The market is happy. Henderson shares jumped 13 percent, adding 330 million pounds to the company's market value. That's more or less equal to Henderson investors' share of the stated value creation from the deal, based on their 57 percent stake in the enlarged business.
Back to governance. The terms crunch the businesses together at their recent average prices with no premium paid either way. Weil and Formica stay on as co-CEOs. It's normally better for one company to pay a premium to the other and take full control. In this situation, it would have had to be the larger Henderson making such a move. But the reality is that Janus staff would probably have walked out with Weil. So Henderson investors would have paid a premium -- and got less.
That doesn't mean the co-CEO structure should endure. Weil and Formica need to agree that one will take over before long, and say so.
Surely this deal will inspire other U.K. fund managers to do cross-border mergers for the same reasons? Aberdeen Asset Management jumped as much as 5.6 percent on Monday.
Not so fast. The Henderson-Janus tie-up was possible largely because Henderson could sacrifice its primary London listing to New York, where Janus trades, with no loss of face. Henderson keeps a parallel listing in Sydney, and its London investor-base would be the smallest of the combined company. The fact is trading in Henderson's London shares would have drifted to the U.S. whatever. Other U.K.-listed funds groups might find it harder to do a nil-premium transatlantic deal on the same terms.
If the governance can be simplified, there's more to like than dislike about Henderson's deal -- unless you're a trader in an investment bank hoping to be the next lucky recipient of seed funding from Henderson or Janus.
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