Updated with correction
Bank of America's board is in the final stages of weighing bids by Ameriprise Financial Inc. and Nuveen Asset Management, backed by private equity firm Madison Dearborn Partners LLC, for subsidiary Columbia Management's long-only equity and fixed-income business, a competition that puts the complexity of this year's M&A scene on full display.
Investment bankers say Ameriprise, Minneapolis, which raised $900 million in mid-June to make acquisitions, is the most aggressive bidder, offering well over $1 billion in cash for the business, which includes equity boutique Wanger Asset Management, Columbia's jewel in the crown.
Madison Dearborn's competing cash-plus-seller-financing bid, which is believed to be larger on paper, would be a “contribution deal,” with Columbia's long-only assets injected into Nuveen Asset Management, Chicago, according to one investment banker who declined to be named.
Madison Dearborn led a consortium of private equity investors that teamed with Nuveen management in a debt-laden deal to take the firm private in 2007, as equity markets were peaking.
For Madison Dearborn, the Columbia deal would be a means of cost-averaging — providing a relatively low-cost boost to Nuveen's earnings power, noted another investment banker who also declined to be named.
Last week, Nuveen raised $425 million through a second lien-term loan, at an effective interest rate of roughly 15%, in part to retire $220 million in bonds coming due in 2010, yielding roughly 5%.
Matthew Noll, a senior credit officer with Moody's Investors Services' Financial Institutions Group, called the Nuveen move “not unfavorable,” but noted that — with debt outstanding that is 10 times the firm's annual earnings — the company continues to face “substantive balance sheet challenges.”
Other potential bidders — such as OppenheimerFunds, MassMutual Financial Group's asset management subsidiary, and Invesco Ltd. — have been unwilling to match Ameriprise's cash offer, leaving Ameriprise the favorite to win the prize, investment bankers say.
A key to extracting value from an acquisition of Columbia is ensuring that Bank of America retains incentives to employ its distribution muscle on Columbia's behalf, said one industry veteran familiar with the bidding, who declined to be named. With its all-cash bid distinguishing it from the demands of other prospective buyers for a healthy dose of seller financing, it remains to be seen how Ameriprise will ensure Bank of America's continued support, he said.
According to the first investment banker, the Madison Dearborn bid may be superior on paper, but a number of Bank of America board members appear to favor Ameriprise's all-cash bid.
Boston-based Columbia, the result of a string of mergers and acquisitions during the past decade, has proven a complicated company to sell, market watchers say. Along with standard questions over who owns the clients when a bank or broker tries to unload a money management firm, the situation at Bank of America is further clouded by the company owns a 47% economic interest in industry powerhouse BlackRock Inc.
Columbia has three independent mutual fund boards, while Marsico Capital Management LLC, a former Columbia affiliate that engineered a management-led buyout in 2007, still subadvises about a sixth of Columbia's more than $60 billion in equity assets.
Meanwhile, Columbia's more than $170 billion in money-market assets could end up being subadvised by New York-based BlackRock, which would have the option of buying the business outright later, some investment bankers say. Asked during the company's July 21 earnings call about talk that BlackRock would take on those assets, BlackRock Chairman and CEO Laurence D. Fink would only say that his firm isn't looking to make acquisitions at this point.
Spokesmen at Bank of America, Ameriprise, Madison Dearborn, Nuveen, BlackRock and OppenheimerFunds all declined to comment.