LONDON -- Old Mutual PLC has compiled a shortlist of UAM affiliates it wants to include in a core group of roughly 10 firms once its $2.2 billion purchase of United Asset Management Corp. is final.
Firms in the core group would have "complementary investment styles" that would not overlap, said Kevin Carter, head of Old Mutual Asset Management U.K. Ltd., London. He would provide no clues as to who would be included, but U.S.-based investment bankers said they were likely to be:
* Pilgrim Baxter & Associates Ltd., Wayne, Pa.;
* Barrow, Hanley, Mewhinney & Strauss Inc., Dallas;
* Dwight Asset Management Co., Burlington, Vt.;
* Heitman Financial LLC, Chicago;
* Provident Investment Counsel Inc., Pasadena, Calif.;
* Clay Finlay Inc., New York;
* Sirach Capital Management Inc., Seattle;
* NWQ Investment Management Co., Los Angeles; and
* OSV Partners, Bad Homburg, Germany.
Investment bankers gave OSV Partners just an outside chance of joining the core.
"We are one of the few currency overlay managers. I think we are going to be included in that core group, but we are still in discussions," said Fred Gattling, principal of OSV, which has just more than $1 billion in assets under management.
Investment bankers had expected Rogge Global Partners PLC, London, to be part of the core group, but the firm turned down Old Mutual's request that it join it, said Olaf Rogge, partner and director of Rogge Global.
"We said, `Thank you very much but we are not interested,' " Mr. Rogge said. He did not like the idea of closer dependency on Old Mutual, saying the firm wants to remain independent.
Rogge struck a deal with Boston-based UAM earlier this year to buy back up to 30% of its shares from the parent company, said Mr. Rogge.
Old Mutual already has approved the re-equitization of "a handful" of the U.S.-based firms, said Mr. Carter.
Re-equitization is likely to be a prerequisite for inclusion in the core group, said David Silvera, managing director, Rosemont Partners LLC, West Conshohocken, Pa., a private equity manager that is not a UAM affiliate.
UAM earlier this year agreed to partially re-equitize both Rogge and Clay Finlay.
Renegotiating the revenue-sharing arrangements into profit-sharing agreements was another condition for entry into the core group, said Mr. Carter. But Old Mutual probably would need to offer the management of affiliate companies some form of equity stake if it hopes to retain their loyalty and support, said Mr. Silvera.
Negotiations to restructure existing revenue-sharing agreements already began with some of the affiliates in anticipation of Old Mutual's offer for UAM being accepted in early September. But Mr. Carter would not comment on how they were progressing.
Mr. Silvera said he has been approached by a number of UAM affiliates looking for buyers. "It ranges from some of the jewels to those on the periphery that could be merged or sold. These rumblings were occurring before the transaction was announced and they have not stopped since," he added.
Each affiliate within the group of 10 companies would retain its core branding and franchise. "That is a key part of what we have bought," said Mr. Carter. The core money managers would be "specifically presented" to Old Mutual's clients in the United Kingdom and South Africa.
One of Old Mutual's main aims in acquiring UAM was developing an international investment capability to market to its core customer base in those countries, said Mr. Carter.
The rest of the affiliates would be part of a group of roughly 30 companies, pared down from UAM's current 42 affiliates, which would be supervised by James Orr, UAM's president and chief executive officer. This group would range from those UAM affiliates looking for new buyers, such as Glasgow-based Murray Johnstone Ltd., to those preferring to stick with the revenue-sharing arrangements put in place under UAM's former chairman and chief executive officer, Norton Reamer.
Firms such as Paris-based Expertise Asset Management, which has $138 million in assets under management, probably would be too small to include in the core group at this stage. Henri de Lattre, Expertise's managing partner, said his firm is not being re-equitized and is focusing on developing its French client base.
For the firms that are not in the core group, Mr. Carter said, "we are considering everything from not changing them to possibly selling them out of the group or perhaps moving them to the first group. We own these companies and we care very deeply about them."
Mr. Carter does not believe the second-tier group simply would be a shop window for potential buyers. The firm is committed to all the affiliates, particularly as it continues to receive cash from them through the existing revenue-sharing arrangements, he said.
Laura Dagan, managing director for Dwight Asset Management; Gary Pilgrim, chief investment officer of Pilgrim Baxter; and George Handtmann, executive managing director of Provident Investment Counsel, would not comment on the negotiations with Old Mutual. Bryant "Tim" Hanley, principal of Barrow Hanley, did not return calls by press time.