Some $486 billion in assets under management are at stake through a handful of proposed mergers and acquisitions involving money management firms, insurance companies, investment banks and commercial banks.
And, faster than you can say merger mania, the investment management landscape is changing.
In some cases, the change is by design. Most notably, the acquisition of Wells Fargo Nikko Investment Advisors by Barclays PLC will create one of the largest institutional money managers in the world, with $205 billion in assets under management.
In others, money management isn't driving the deals, but the way the combined firms compete in the investment industry will be dramatically altered.
Besides London-based Barclays' purchase of WFNIA, San Francisco, other combinations in the works are:
A possible merger of Metropolitan Life Insurance Co., New York, and New England Mutual Life Insurance Co., New York. While the deal is being pursued for the life and annuity business, the merged firm would have more than $127 billion under management for pension funds, more than any other U.S. insurer. Industry experts say executives eventually must decide how to manage the big stable of management subsidiaries that will result.
The potential acquisition of Kleinwort Benson Group PLC, London, by Dresdner Bank AG, Frankfurt.
Dresdner's desire to gain Kleinwort Benson's investment banking skills and Kleinwort's need for additional capital are behind the deal. Still, the combined entity - with more than $110 billion under management - would create a hodgepodge of money management companies with little readily discernible synergies.
Another possible insurance industry merger, that of Massachusetts Mutual Life Insurance Co., Springfield, and Connecticut Mutual Life Insurance Co., Hartford, appears to be capital driven. The insurance firms' insurance lines fit together well too, however, industry experts say. The pair of insurers would have $21.5 billion under management, and Mass Mutual could tap into Connecticut Mutual's 401(k) client base.
The acquisition of First Fidelity Bancorp., Newark, N.J., by First Union Bank, Charlotte, N.C. The purchase mainly is designed to give First Union access to the East Coast commercial banking market. But industry observers say First Union is the one with muscle in the pension business, muscle First Fidelity surely could use as it fights for market share in a geographic area that's not growing. First Union has about $14.2 billion under management; First Fidelity, $8.2 billion.
Mary Pat Thornton, partner at Putnam Lovell & Thornton, New York, said activity is "definitely up" in financial services mergers and acquisitions. "We expect more."
She said the activity is a continuation of a theme of financial firms getting bigger. "Stronger insurance companies are certainly in a consolidation mode," Ms. Thornton said.
As for the Wells Fargo Nikko-Barclays combination, WFNIA Chief Executive Officer Fred Grauer said the transaction - valued at $440 million in cash - is designed to "establish a new class of firm, which we are calling a global super firm."
Wells Fargo Nikko will be combined with Barclays' investment management subsidiary, BZW Investment Management, London. The combined entity will be based in San Francisco, WFNIA's home base.
When put together, the organization will have a "crossing capability .... that is unparalleled - the ability to exchange securities between the distributors and contributors of assets," Mr. Grauer said (see story on page 2).
At Met Life and New England Mutual, executives aren't talking about the money management operations, further proof investment management isn't driving the deal.
Of the two, Met Life is the bigger pension industry player, with about $93 billion under management including assets of its subsidiary, State Street Research & Management, Boston. New England has about $34.4 billion under management through eight subsidiaries, including Loomis, Sayles & Co., Copley Real Estate Advisors and Reich & Tang Capital Management. In addition, New England reportedly is negotiating to buy Harris Associates L.P., Chicago.
On the 401(k) side, Met Life has been a player for some years, with about $14 billion under management in that area. New England, on the other hand, only manages about $2 billion in 401(k) assets through its subsidiaries. New England won't roll out a bundled product until next month.
In the Dresdner-Kleinwort deal, Dresdner would pick up a midsized money manager (Kleinwort Benson Investment Management Ltd.) that has been starting to overhaul its pension investment business. When performance fell off several years ago, the firm infused more quantitative analysis into its investment decision making.
Dresdner's only investment management gem is Oechsle International Advisors, Boston, which has a well-defined, aggressive value approach that wouldn't mesh well with Kleinwort's. Oechsle has $6.56 billion under management, 80% for U.S. pension clients.
At Mass Mutual, Mary Knight, assistant vice president, said if the merger goes through, her company would gain an expanded defined contribution distribution network through Connecticut Mutual's agents. Mass Mutual's own agent network is small, she noted, so it relies on outside insurance agents and brokers.
Mass Mutual has about $19 billion under management through Oppenheimer Management Corp. and Concert Capital Management, two subsidiaries. The insurer also has agreed to buy David L. Babson & Co., which manages about another $2 billion.
This story was written by Nancy K. Webman with reports from Paul G. Barr, Mercedes M. Cardona, Joel Chernoff and Christine Philip.