BOSTON - Mellon Financial Corp. is expected to buy Standish Ayer & Wood Inc. Inc., for an estimated $600 million, sources said.
Ronald P. O'Hanley, president of Mellon Institutional Asset Management, Boston, said through a spokeswoman that the company does not comment "on rumor and speculation."
Standish Ayer & Wood President and Chief Executive Officer Richard Wood did not return phone calls by press time.
Standish is a 68-year-old money manager based in Boston, with $43.5 billion in assets under management, primarily in fixed-income strategies. Mellon Financial Corp, based in Pittsburgh, has $530 billion in asset under management in 12 different affiliates such as Dreyfus Corp., New York; Founders Asset Management, Denver; The Boston Co., Boston; Pareto Partners, New York; Newton Global Investors, London; and Franklin Portfolio Associates LLC, Boston.
Stephen Boeschenstein, director and senior strategy consultant at The Optima Group, Fairfield, Conn., a money management consulting group, estimates the ballpark for acquiring Standish Ayer would be $520 million to $690 million. More specifically, he expects it to be around $600 million. Mr. Boeschenstein said that because Standish Ayer is primarily a fixed-income manager, the estimate is discounted somewhat from what an institutional equity manager would fetch.
Another industry source, while agreeing the final price probably would be around $600 million, said it could range anywhere from $400 million to $800 million, based on other factors. The pricetag is discounted a bit because Standish is primarily a fixed-income manager, he agreed. However, he said, it could go toward the higher end of the range because of other factors such as client base. Firms like Standish, with a number of large, longstanding mandates, can add value, he said.
Pensions & Investments first reported that Standish was up for sale last December, and that Merrill Lynch & Co., New York, was hired as its investment banker. It's not known how many serious bidders Standish attracted, but rumors about Mellon being a bidder have been floating for months.
Surprised by length
Indeed, observers were surprised negotiations took so long. But Christopher Acito, director at BARRA Strategic Consulting Group, Darien, Conn., said negotiations in general could be taking longer because firms might be looking more at "constructing a good deal than just going for the highest bidder."
Geoff Bobroff, president of Bobroff Consulting, East Greenwich, R.I., said the Mellon acquisition of Founders Asset Management a few years ago also took awhile to get from the rumor to completion stage. He said it might be a function of Mellon "getting their arms" around the organization and its individuals to ensure continuity.
Standish Ayer underwent a number of executive changes last year starting at the top, as Mr. Wood replaced George Noyes in September as CEO after 11 years on the job. Also in September, Marketing Director Thomas Sorbo was promoted to chief operating officer, a new position at the firm. In addition, the firm nearly doubled the number of executives with ownership in the company by elevating 15 associate directors to directors, which gives them a stake in the company. And, the firm saw some portfolio management turnover in 2000 as the four-member small-cap growth equity team left the firm. That team was replaced by three senior-level Standish portfolio managers.
Assets down
Assets have declined slightly in the past two years, to $43.5 billion at the end of 2000 from $44.7 billion at the end of 1999. At year-end 1998, the firm reached a high of $46.2 billion.
Last year saw a number of defections. Those included the Baltimore County Employees Retirement System, Towson, Md.; the Maine State Retirement System, Augusta; and the City of Austin (Texas) Employees Retirement System.
More recently, the Anchorage Police & Fire Retirement System terminated Standish in January. Charles Laird, director of the $475 million fund, said the officials there had heard about the rumored sale, but it didn't affect their decision to terminate the firm. Fund officials had decided to have only one fixed-income manager, and the decision of which manager to keep was based on performance. Mr. Laird noted Standish also had the smaller portfolio of the two managers.
But the firm did pull in an $88 million international fixed-income mandate from the $1.6 billion Seattle City Employees Retirement System, Seattle, last summer.
Mel Robertson, assistant executive director at the Seattle City fund, said officials there would look at a possible sale of the firm from the perspective of how it would affect the fund's portfolio. "Different mergers affect things differently," said Mr. Robertson, who said he had heard rumors of the sale. He said the officials' main concerns with a potential merger would be to make sure the management team is intact and that the two cultures are compatible.
On that front, observers say the potential marriage of Mellon and Standish is a good one.
`Complementary situation'
"It's a very complementary situation," said Burton Greenwald, president of B.J. Greenwald Associates, a Philadelphia-based money manager consultant. In Standish, Mellon would get a strong institutional manager with a fixed-income focus, while Standish would get the distribution capabilities and resources of a $500 billion international money manager.
"It's very difficult to compete unless you have great scale in this marketplace," he said.
