Aetna Life Insurance Co., Hartford, could get up to $200 million in capital from the sale of its Aeltus Investment Management Inc. subsidiary.
The list of potential suitors is a round-up of the usual suspects: a management buy-out; United Asset Management, Corp. Boston; or a bank - most likely a foreign one. Aetna reportedly has hired Putnam Lovell Thornton, Inc., New York, to broker a sale.
Aeltus' size and breadth of products are attractive, say observers.
Aeltus, a manager with more than $20 billion in assets, most of them institutional, offers domestic equity, fixed-income and real estate products.
Mary Pat Thornton, the firm's president, refused to comment on any aspect of the potential sale.
Sources point to the long-standing connection between Thomas M. O'Neill, Aeltus president and chief executive officer, and UAM President Norton Reamer. The two worked together at Putnam Investments before Mr. Reamer started UAM, and Mr. O'Neill later worked at Hellman Jordan Management, a UAM affiliate.
Mr. O'Neill did not return phone calls.
Mr. Reamer would not comment.
A source close to Mr. O'Neill said his mandate is to steer Aeltus through the sale to an outside buyer.
He was not brought in with the intention of running the firm as part of Aetna or another insurance company, said the source. "He is not an insurance company executive," the source said.
Management could be the wild card in a sale, said Brad Hearsh, managing director of PaineWebber Inc., New York.
If management wants independence, it can raise the money from outside sources, and there is interest among financial groups to fund such transactions, he said. For one thing, he said, they guarantee top employees will stay put after a sale, and giving executives equity participation helps performance.
Other observers cast some doubt on the UAM scenario, noting both Aeltus' product scope and valuation are likely beyond those of most UAM firms.
Additionally, Putnam Lovell's presence in the process would seem to preclude a UAM bid, because UAM prefers to buy before there are multiple bidders to avoid driving up the purchase price.
"UAM would have to extend its capital resources to bring these guys under it," said Eli Neusner, consultant with Cerulli Associates, Boston. "It's a pretty big ticket institution."
An acquaintance of Mr. Reamer agreed: "If Norton hasn't dome something by now, it may be Aetna has such a diverse business that they don't know what to do with it .*.*. It's not a boutique firm by any means," he said.
But don't rule out UAM yet, said Mr. Hearsh.
He noted its acquisition of Provident Investment Counsel, Pasadena, Calif., which has $13.5 billion in assets, was achieved even after Goldman Sachs & Co., New York, already was acting as a broker.
The process seems to be still in the early stages and clients have not been briefed about any potential sale.
There has been no official communication from Aeltus regarding sale plans, said Richard Rose, chief investment officer of the $2.1 billion San Diego County Employees' Retirement Association, an Aeltus client.
Aetna "wouldn't confirm or deny market rumors or speculation," said Aetna spokesman Mike Bazinet. "As we have said for a long time, we continually assess various opportunities for our business, as other companies do."
A sale of Aeltus would bring in approximately $200 million, or 1.25% to 2% of the firm's assets under management, said Mr. Neusner.
Aeltus has the kind of profile that would argue for a fairly high valuation, he said; it has a good cross-section of assets across different classes and a large portion of assets from outside clients.
He noted that, of nearly $22 billion in assets it managed at the end of 1993, only $6.5 billion were the insurance assets of its parent, Aetna.
There are potential buyers, including UAM and its clones and international banks, said Bruce McEver, president of Berkshire Capital Corp., New York. But the sale and its valuation would depend on the profitability of the firm, he said.
Aetna does not break down results for its individual subsidiaries, but according to the year-end 1994 results released last month, Aetna Large Case Pensions - the business group under which Aeltus reports its results - showed operating earnings of $71 million. The total operating earnings for all six of Aetna's business groups was $510 million.
According to Pensions & Investments' 1995 Directory of Investment Advisors, Aeltus had $20.5 billion in assets as of Jan. 1, of which $12.5 billion are U.S. tax-exempt assets.
Aeltus' assets are invested 30% in bonds, 34% in stocks, 18% in real estate equity, 7% in mortgages and 11% in cash equivalents.
Assuming the firm manages $12.5 billion in outside assets and charges an average fee of 40 basis points, Aeltus would have earned $50 million last year, said PaineWebber's Mr. Hearsh. At a valuation of two to three times earnings, he estimated the sale could bring $100 million to $150 million.
A bank or insurance company interested in investment management could take it on, said Mr. Neusner.
A likely buyer would be one of several European banks now searching for acquisition targets in the United States. He noted "$22 billion would really be a nice bonus to a bank that's very dedicated to asset management."
The size of the transaction would make it more likely that a bank would be the acquirer, said Mr. Neusner.
Wall Street wirehouses, the other institutions large enough to have the capital for such a transaction, are fighting troubles in their trading operations that would preclude them from making a deal, he said.
Aeltus' only drawback would be that it lacks the international high profile of a firm such as Brinson Partners Inc. - acquired last year by Swiss Bank Corp. - among the foreign buyers, he said.
"The thing about Aeltus is: it isn't a world-recognized name," he said.
