NEW YORK - Metropolitan Life Insurance Co.'s acquisition of Bankers Trust Co.'s defined contribution record keeping and administration business could make Met Life the big market player it has aspired to be.
Terms of the deal weren't announced, but industry experts estimate them to be between $250 million to $300 million.
The move positions the insurer as a service provider to large plans, as well as to the mid-sized clients that had been its base.
With the acquisition, Met Life will add 42 large plans to the 1,200 it administered previously. Met Life's participant base increases to 1.6 million from 600,000 in one step.
Bankers Trust's record-keeping clients include IBM Corp., Stamford, Conn.; US WEST Inc., Englewood, Colo.; Hercules Inc., Wilmington, Del.; BellSouth Corp., Atlanta; Fluor Corp., Irvine, Calif.; and Northern Telecom Inc., Nashville.
The deal, scheduled to close by the end of the year, increases Met Life's defined contribution assets under administration to nearly $67 billion from $12 billion. The acquisition also represents another step in the industry consolidation among record keepers.
A strategic decision
Gary Lineberry, vice president of Met Life's defined contribution group, emphasized the acquisition was made to position the firm as a large plan service provider.
He said Met Life expects the record-keeping operation to be profitable. By contrast, industry sources characterized the Bankers Trust record-keeping and administration unit as high quality, but not profitable.
"We see the value in future growth and strength of relationships over time. We don't see this as a retail or a cross-selling opportunity, but rather a strategic decision aimed at growth," said Mr. Lineberry.
He said Met plans to expand its institutional distribution organization "in order to better service the larger end of the market and larger plan sponsors."
Mr. Lineberry noted the acquisition, in conjunction with Met Life's existing investment management capabilities, allow the firm to provide more diverse options. Met Life's uses its State Street Research & Management Co., Boston, and New England Investment Cos. L.P. affiliates - in addition to the alliance it formed in 1996 with United Asset Management Corp. - for money management. Met Life also has a family of 23 proprietary mutual funds, most of which are managed by State Street Research and New England Investment.
"All of this puts us in an enviable position in terms of our overall capabilities, where we are able to serve plans with 20 to 200,000 participants," he said.
'A gritty call'
The Met Life move took most industry insiders by surprise.
Noting insurance companies have focused on smaller plans, Peter Starr, principal at Cerulli Associates Inc., Boston, said, "Insurance companies rarely swim in these waters."
The possibility that Bankers Trust would unload its unprofitable record-keeping business had been expected for weeks. But most expected bidders to include large mutual fund companies or major Wall Street investment firms.
"It was a gritty call by Met Life to go after the large plan market with such a move," said Mr. Starr.
Some Bankers Trust clients also were taken aback by the Met Life move. Said a spokesman for Hercules: "It hasn't changed our view about them, but we would have been more thrilled if it had been another player."
Still, he said Hercules doesn't expect to change service providers. "What has been communicated to us is that the infrastructure will remain the same and the contacts will remain the same and basically it amounts to an ownership change."
BT is record keeper and trustee for the firm's nearly $370 million in defined contribution assets.
When rumors started to surface several weeks ago about a possible sale of the BT operation, Donald Butt, manager of investments at US WEST, indicated the company would conduct a search if a deal were completed. Now, however, Mr. Butt said officials there "do not see this (the acquisition) as a problem."
Keeping the systems, people
Mr. Lineberry said Met Life will retain Bankers Trust's employees, systems and infrastructure. In addition, he said, Met Life plans to continue the development of Bankers Trust's new record-keeping platform. He described the platform, known as Millennium, as the next generation of sophisticated record keeping.
"Millennium is a new proprietary system and we intend to continue to invest in it. It will be a whole new system moving forward," he said.
Christopher Myers, managing director and head of defined contribution services at Bankers Trust, said Millennium has been under development for the past two years and should be available sometime at the end of 1998 or early 1999.
He described Millennium as a "full replacement" for the existing BT system, with enhanced capabilities, including a higher level of data access, real time updates and increased automation.
Mr. Lineberry said he believes Met Life will be able to make the transition from serving the middle-market plans to the large plan market without difficulty. He noted Met Life has benefit relationships with many of the nation's largest companies through its traditional group pension and investment business.
"We have institutional relationships with some of the largest corporations in the U.S., and we view the 401(k) business as a benefit relationship not a retail business. I think we will bring a tremendous distribution capacity and we also have a high level of brand recognition already."
Defined contribution consultants view the sale of the BT record-keeping business to Met Life as another step in consolidating the business among a few large players.
In recent months, Segal Co. has withdrawn from record keeping. Watson Wyatt Worldwide spun off its record-keeping business into a joint venture with State Street Global Advisors. Kwasha Lipton, Fort Lee, N.J., was acquired by Coopers & Lybrand, while Northern Trust Co., Chicago, acquired Hazelhurst & Associates in 1994.
Adele Heller, director-funds investments at RogersCasey, Darien, Conn., said the consolidation in defined contribution record keeping is similar to what happened in the master trust industry in the 1980s. "It takes a high degree of capital commitment and you may find in the future a handful of five or six institutions doing most of the record-keeping business, including some of the mutual funds," she said.