TIAA-CREF to Buy Nuveen Investments in $6.25 Billion Deal

TIAA-CREF agreed to buy Nuveen Investments from Madison Dearborn Partners LLC for $6.25 billion, propelling the manager of teachers’ retirement savings into the top 20 of U.S. mutual-fund firms.

The price includes $4.56 billion in outstanding debt, according to the New York-based firm, which today announced the acquisition in a statement. TIAA-CREF will add $221 billion in assets, bringing its funds under management to about $800 billion. Chicago-based Madison Dearborn purchased Nuveen almost seven years ago for $5.75 billion, at the time the largest buyout of a U.S. asset manager.

“This makes TIAA-CREF a real contender in the marketplace,” said Geoff Bobroff, a mutual fund consultant based in East Greenwich, Rhode Island. “They will have an interesting mix of businesses.”

The transaction is the biggest ever for TIAA-CREF, led by former U.S. Federal Reserve vice chairman Roger Ferguson. Founded in 1918 as a pension fund for professors, the acquisition will help TIAA-CREF expand mutual-fund assets and appeal to a broader set of individual investors. The combined company would rank among the 20 largest U.S. mutual-fund firms, a list dominated by firms such as Fidelity Investments and Vanguard Group Inc., data from Morningstar Inc. show.

“We think this is very complementary,” Robert Leary, head of TIAA-CREF’s asset-management unit, said today in an interview. “It also adds a very large distribution capability. They’re a powerhouse in the retail distribution world.”

Buyout Boom

Madison Dearborn acquired Nuveen in November 2007, near the top of the buyout boom and less than a year before the September 2008 collapse of Lehman Brothers Holdings Inc. Nuveen is the largest U.S. manager of closed-end funds and is also known for its offerings investing in municipal debt -- two areas that were hurt industrywide during the 2008 financial crisis. Nuveen manages about $54 billion in mutual-fund assets and about $41.5 billion in closed-end funds.

Madison Dearborn contributed $1.27 billion as part of the deal to acquire Nuveen and added as much as $82 million in 2011 to buy additional shares from Bank of America Corp., bringing its stake to about 60 percent, according to regulatory filings. The firm would receive about $1 billion from the cash proceeds of the deal announced today, based on that stake.

Madison Dearborn hasn’t disclosed whether it has taken any distributions from Nuveen since the 2007 acquisition, which makes it difficult to calculate whether private-equity firm made a profit or loss on its initial investment. David Pequet, a member of Madison Dearborn’s investor-relations group, didn’t immediately return a message left at his office.

Nuveen’s Earnings

Nuveen’s adjusted earnings before interest, taxes, depreciation and amortization fell 6.2 percent to $492 million in the year ended 2013, according to a filing.

Nuveen’s star manager David Iben left in June 2012 to form his own company backed by hedge-fund manager Jeffrey Vinik, which prompted investor withdrawals from its Tradewinds stock-picking unit. Nuveen in November 2012 hired Robert Doll, a former BlackRock Inc. equity manager known for his annual market predictions, as chief equity strategist.

Ferguson, 62, was among those mentioned in a survey of economists last year as potential successors to former Federal Reserve Chairman Ben S. Bernanke. He has changed TIAA-CREF dramatically since taking over in April 2008, Burton Greenwald, a mutual fund consultant based in Philadelphia, said in an interview.

Expanding Assets

Under Ferguson, TIAA-CREF diversified beyond investors consisting mainly of employees at academic and medical institutions by adding institutional clients. TIAA-CREF had $72 billion in open-end mutual funds as of Feb. 28, more than tripling its assets since the end of 2009, according to Morningstar.

“The company has really done a good job building the asset-management operation beyond its traditional client base,” said Greenwald in a telephone interview.

The firm has had strong performance in mutual funds, said Greenwald, which it has used to transform itself into a bigger player in the retirement business. The deal will give TIAA-CREF access to distribution among brokers and advisors, an area where it has traditionally been weak.

TIAA-CREF was named the best overall large fund company this year and in 2013 by Denver-based research firm Lipper. Nuveen won the same award in 2012.

Distinct Unit

Nuveen will remain a distinct unit within TIAA-Cref, retaining its brand name and its own management, Ferguson said in an interview. He also said the deal wouldn’t change the nature of TIAA-Cref’s mission.

“We will continue to single-mindedly focus on the not-for-profit sector,” Ferguson said. “This isn’t a consolidation or a synergy play. We look at it as a very smart investment.”

Bank of America, Wells Fargo & Co. and Citigroup Inc. were the bankers for Nuveen Investments. UBS AG, Goldman Sachs Group Inc. and Moelis & Co. advised Nuveen’s management. Lazard Ltd. and JPMorgan Chase & Co. advised TIAA-CREF.

Madison Dearborn was advised by Morgan Stanley, Deutsche Bank AG and Royal Bank of Canada.

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