AMVESCAP looking for a turnaround, not an acquisition

By Kathie O'Donnell

AMVESCAP PLC, whose shares have bounced around in recent weeks because of an acquisition rumor that eventually fizzled, probably wouldn't consider a takeover offer this early in its turnaround plan unless it were exceptionally generous, analysts say.

Shares of AMVESCAP, the London-based parent of AIM Management Group Inc. of Houston and INVESCO Inc. of Atlanta, rose a few weeks ago amid talk that The Goldman Sachs Group Inc., New York, was interested in a takeover of the firm.

AMVESCAP shares fell when those rumors subsided. And they sank again on Oct. 17, possibly on a further debunking of the Goldman rumor, according to a report by Buckingham Research Group Inc. of New York, which also called AMVESCAP a "favorable turnaround story."

"We would be using the absolute/relative weakness as a buying opportunity," Buckingham analyst William Katz wrote. "While we have turned more cautious on the sector entering (the third-quarter) earnings season — due to valuation — we still avidly like" AMVESCAP.

AMVESCAP closed at $22.31 Oct. 6, before the rumors surfaced. The stock rose to $23.90 Oct. 12, but dropped to $22.48 Oct. 17. The stock closed at $22.65 Oct. 25.

AMVESCAP is unlikely to sell to Goldman, because the firm probably wouldn't want to pay what the asset manager — in roughly the first year of a three- to four-year restructuring plan — thinks it ultimately will be worth, said Michael Long, a research analyst in London with New York-based Keefe Bruyette & Woods Inc.

"I think they believe that the value of the company can be driven a lot higher over that time," he said.

In August 2005, Martin Flanagan joined the company as president and chief executive officer from Franklin Resources Inc., San Mateo, Calif., where he was president and co-CEO.

The two companies share some similarities, Mr. Long said. "They're both built from a whole series of acquisitions, the main difference being that Franklin's business is much more integrated across the same platform," he said. Many of AMVESCAP's businesses are run "in little silos" of their own.

Mr. Flanagan is working to change that by reducing cost overlaps in various areas, such as information technology systems, Mr. Long said.

AMVESCAP is "still quite an ambitious company," said Mr. Long, who wouldn't rule out the possibility that it also could find itself on the buying side of the acquisition table.

He noted the company has recently acquired PowerShares Capital Management LLC, Wheaton, Ill., a provider of exchange-traded funds, and private equity firm WL Ross & Co. LLC, New York.

Jeffrey Ptak, an equity analyst at Chicago-based Morningstar Inc., said AMVESCAP already has "expended quite a bit of effort" in trying to capitalize on its global footprint. Although the firm has "resources the world over," it wasn't always clear that AMVESCAP was "thinking as a global firm would," he said.

AMVESCAP has done "a reasonably diligent job" of trying to identify opportunities to cut costs, Mr. Ptak said.

Although he couldn't say for sure what would interest Goldman in acquiring AMVESCAP, he suspects it could be the inroads AMVESCAP has made into such places as China.

But just because AMVESCAP management would be unlikely to entertain takeover offers now doesn't mean it would never consider a sale, Mr. Long said.

"It's possible that they could be bought, but it's probably a number of years down the road, when either management has turned it around and improved profitability or they've failed miserably, and shareholders are forcing them to basically sell," he said.

For now, however, AMVESCAP has built "very good relations with shareholders"" Mr. Long said.

He added that Mr. Flanagan may be more receptive to a deal in a few years than former Executive Chairman Charles Brady would have been. "I don't think he's trying to build it up in four years just to then auction it," Mr. Long said.

Both AMVESCAP spokesman Douglas Kidd and Goldman Sachs spokeswoman Andrea Raphael declined to comment.