Merger of Necessity: Janus, Henderson Combine to Cut Costs -- 2nd Update

By Sarah Krouse and Ben Dummett 

LONDON -- Henderson Group PLC agreed to acquire U.S. rival Janus Capital Group Inc. for about GBP2.01 billion ($2.59 billion) as the two active management firms look to cut costs in the face of pressure from low cost fund providers like BlackRock Inc. and Vanguard Group.

The planned deal comes as active managers --- who have posted net outflows in recent years -- try to square up to their passive rivals by pursuing new deals or rethinking their product mix.

"For active managers, it's a double whammy right now: rising costs and regulatory burdens are squeezing profit margins at a time when passive investments are taking assets away," said Kyle Sanders, an analyst at Edward Jones.

Mr. Jones said he expects more large deals in the asset management industry as active managers try to become more global and cut costs.

Janus and Henderson aim to save money and boost revenue by expanding their global distribution of equity and bond funds, as investors continue to flock to competitors who specialize in exchange-traded products and other passive investments. These sorts of products typically cost less than the active funds for which both Henderson and Janus are best known.

The firms said the combined companies could bring in two to three percentage points of additional net new money, though some analysts questioned that projection.

The deal will create a London-headquartered money manager -- Janus Henderson Global Investors PLC -- with more than $320 billion in assets.

As part of the deal, Henderson is gaining access to the investment knowledge of famed bond manager Bill Gross, who abruptly left Pacific Investment Management Co. and joined Janus in 2014. He now manages an unconstrained bond fund for the firm.

Henderson Chief Executive Andrew Formica said that Mr. Gross supports the deal.

Through a Janus spokeswoman, Mr. Gross couldn't immediately be reached for comment.

Executives for both firms have been discussing a potential deal since earlier this year, said Mr. Formica, and executives flew to Tokyo in recent months to meet with leaders of The Dai-ichi Life Insurance Company, which owns a roughly 20% stake in Janus.

After the merger, Dai-ichi will own a 9% stake in the combined entity that it plans to increase to at least 15%, the companies said.

By combining, Janus and Henderson are betting on generating annualized savings of about $110 million from cost-cutting efforts such as layoffs, and the elimination of duplicate back-office functions.

The deal is expected to bolster revenue by allowing Denver-based Janus to sell its U.S. equity- and fixed-income products into Europe through London-based Henderson's stronger European distribution network. Meanwhile, Henderson can get similar access in the U.S. and Japan, where Janus is bigger, for the U.K. company's global equity- and fixed-income funds.

In London trading, Henderson shares were up 17% at GBP2.71.

Building a global distribution network through the tie-up is expensive and time-consuming, but the need to gain greater scale and diversify geographically is pushing some active fund managers to merge as an alternative way to achieve the same goal.

The transaction, pending regulatory approvals, is expected to close by the end of June 2017. Henderson shareholders will own about 57% of the combined company and Janus investors will own the rest.

The firm plans to list itself on the New York Stock Exchange and will be led by Mr. Formica and Dick Weil, who will relocate to London from Janus's current headquarters in Denver.

Mr. Weil told analysts the two firms are "almost mirror images of each other on opposite sides of the Atlantic."

The newly created Janus Henderson Global Investors will seek listings on the New York Stock Exchange, where Janus currently trades, while retaining Henderson's second listing on the ASX.

Write to Sarah Krouse at [e-mail] and Ben Dummett at [e-mail]

(END) Dow Jones Newswires

October 03, 2016 12:56 ET (16:56 GMT)

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