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Defined Contribution

Principal to acquire Wells Fargo’s record-keeping business

Principal Financial Group headquarters are seen in Des Moines, Iowa, December 23, 2003.

Principal Financial Group will acquire the institutional retirement and trust business of Wells Fargo & Co. for $1.2 billion.

Included in the deal are Wells Fargo's record-keeping services for defined contribution, defined benefit and employee stock ownership plans; executive deferred compensation program; institutional asset advisory business; and trust and custody offerings for the retirement and non-retirement markets.

Principal will add 3.9 million retirement plan participants from Wells Fargo after the deal closes in the third quarter for a total of 7.5 million participants.

"We think this is a great move," said Daniel J. Houston, Principal's chairman, president and CEO, noting that "the retirement business increasingly has become one of scale, and this acquisition moves the needle for Principal."

Increasing consolidation within the retirement plan record-keeping industry was one of the drivers behind Principal's move now to pick up Wells Fargo's retirement business, Mr. Houston said.

Some of Wells Fargo's areas of strength, including its prominence in the $10 million to $1 billion range of the DC plan record-keeping market and close relationships with DC plan consultants, also were attractive to help Principal broaden its range of services in the DC plan market, Mr. Houston said.

Buying Wells Fargo's record-keeping and trust business will help Principal gain enough scale to move higher in the ranks of service providers.

Wells Fargo's assets under administration totaled $827 billion as of Dec. 31.

As of the same date, the combined AUA of Principal and Wells Fargo for DC plans was $359 billion and $500 billion for all retirement accounts, said Jane Slusark, a Principal spokeswoman.

The largest DC service providers
The combined Principal/Wells Fargo entity would rank sixth among service providers. Assets are in billions as of Sept. 30, 2018.
1 Fidelity Investments$2,154
3Empower Retirement$553
4 Vanguard Group$544
5Alight Solutions$444
6Principal/Wells Fargo$416
7Voya Financial$375
8BofA Merrill Lynch$268
10 Prudential Financial$195
11T. Rowe Price Group$194
13Charles Schwab$161
15John Hancock Financial$156
Source: Pensions & Investments survey

The combined $416.3 billion of U.S. defined contribution plan record-keeping AUA for Principal ($208.8 billion) and Wells Fargo ($207.5 billion) as of Sept. 30 would move the firm to sixth place from eighth and 10th, respectively, in Pensions & Investments' annual ranking of defined contribution record keepers, according to data provided by each firm.

About 2,500 people work in Wells Fargo's institutional retirement business, and job layoffs might be necessary as Principal assesses the synergies between the two similar businesses prior to the close of the deal, Ms. Slusark said.

Principal will maintain four of Wells Fargo's primary offices in Charlotte, N.C.; Roseville, Minn.; Waco, Texas; and Manila, Philippines, she added.

Principal will pay $1.2 billion upfront to Wells Fargo through a combination of between $400 million and $500 million in new debt and the remainder in cash, showed a Principal presentation about the deal provided to P&I.

The agreement includes an earnout of up to $150 million payable to Wells Fargo two years after the deal has closed if existing client fee revenue retention exceeds a preset level.

The firm expects to accrue $60 million of pretax run-rate net expense savings after the Wells Fargo business is fully integrated in 2022, Principal's report said.

As of Dec. 31, Principal had $626.8 billion in assets under management and Wells Fargo Asset Management had $466 million in AUM.