CIBC, one of Canada’s largest banks, will buy for just less than $850 million the 41% stake in American Century Investments now held by J.P. Morgan Chase.
Pending regulatory approvals in the U.S. and Canada, the transaction is expected to close within the next two to three months.
J.P. Morgan has owned a large minority stake in American Century since January 1998, when the giant U.S. bank paid $900 million for a 45% stake in the Kansas City-based money manager, which had roughly $60 billion in assets under management at the time.
As of June 30, American Century had $112 billion in AUM, up from $103 billion at the end of 2010.
In a conference call early Friday to discuss the pending transaction, both Jonathan Thomas, the CEO of American Century, and Gerry McCaughey, the president and CEO of CIBC, said the strategic partnership between the two firms would help them diversify their businesses geographically.
Mr. McCaughey said CIBC’s investment in American Century not only would give his firm’s growing asset management operations a platform for growth in the U.S. market, but also would provide further momentum for CIBC internationally.
Mr. McCaughey said the relationship would allow CIBC to offer American Century’s equity, fixed-income and absolute-return strategies to both Canadian institutional clients as well as to retail investors, including the possibility of the U.S. manager serving as a subadviser for CIBC’s open architecture offerings.
American Century’s Mr. Thomas noted that his company is enjoying the strongest organic growth in its 53-year history, with net inflows in 2010 of $6.1 billion, and roughly $4 billion during the first half of 2011. That leaves the company with an organic growth rate of 5% of its asset base, which Mr. Thomas noted was roughly twice the industry average.
Asked by analysts if CIBC’s investment in American Century could be the opening salvo of a more aggressive acquisition strategy in the U.S. market, Mr. McCaughey said CIBC remains very focused on growing its wealth management operations through “both internal and external activities,” but he suggested his company’s U.S. bases are now well covered.
“We’re extremely satisfied with this as our ownership position in the U.S.,” he said, while leaving open the possibility that CIBC would remain more open to pursuing international acquisitions.
Pressed by analysts whether the agreement included some path to majority ownership for CIBC in American Century, Mr. McCaughey said it does not.
Asked by analysts what led to a parting of the ways between J.P. Morgan and American Century, Mr. Thomas noted that when the two firms established their relationship in 1998, American Century was very much a retail shop and J.P. Morgan was very focused on institutional business. Over the past decade or more, however, “we’ve become extremely institutional,” while J.P. Morgan has developed a strong retail and intermediary business, he noted.