LOS ANGELES - TCW Group appears to have put itself into play through a long, rambling client letter from Chairman Robert A. Day.
TCW would fetch up to $1 billion, estimated Perrin Long, president of Perrin Long Inc., Darien, Conn., a financial services research firm specializing in money management companies. He said the general rule for the sales price of an asset management firm is 1% to 2% of assets; TCW has $53.3 billion under management.
Others put TCW's value slightly lower based on recent deals of a similar nature. Glen Casey, consultant with Cerulli Associates, Boston, said based on recently announceddeals - including the proposed Merrill Lynch & Co. acquisition of Hotchkis and Wiley - buyers could expect to pay an estimated $800 million to $930 million.
Mr. Casey said in addition to TCW's institutional and mutual fund asset management operations, the firm has grown its insurance company general account management business to $6 billion to $7 billion, which merger or acquisition candidates "may find attractive."
Investment industry sources expect substantial global interest to surface for Los Angeles-based TCW, now that Mr. Day has told clients the firm is open to talks on such options as a merger, alliances or being acquired.
Until the letter, TCW steadfastly has discouraged speculation that it was on the market.
State Street Global Advisors, Boston, and Charles Schwab & Co., San Francisco, have been mentioned as among potential domestic suitors.
Still, most interest is expected to come from large foreign financial services groups interested in acquiring a U.S. money management organization with multiple products covering several asset classes, as well as a family of 50 mutual funds.
TCW clients claim the potential change of ownership is not a major concern as long as the investment strategy and portfolio management staff remain untouched.
In his three-page letter to clients, Mr. Day acknowledged TCW "has been approached by a significant number of domestic and international" firms. But, he said, TCW hasn't actively pursued these inquiries.
Now, given the "continued level of these inquiries and the fundamental changes reshaping our industry," TCW management will explore several alternatives, he wrote. Those alternatives include "anything from an acquisition, merger, strategic alliance or public offering."
Without offering specifics, the letter concluded: "We wanted to be sure you understood directly from us what we are doing."
Mr. Day's letter is viewed by many observers as tantamount to putting the firm on the market and encouraging bids.
With the letter, TCW becomes an acquisition or merger candidate, Mr. Long said.
"With the prices of asset management companies now, many companies are willing to be looked at and sold," Mr. Long said. "If you were ever thinking of selling, this may be the best chance relative to the next two years because no one knows what the market will do. You can get good prices today and everyone is talking about everyone in the money management business."
As for suitors, Mr. Long pointed to Schwab. "They (Schwab) want to get into the asset management business and they are close to TCW and have the resources to make a bid. Schwab is a good fit," he said.
A spokesman for Schwab declined to comment on TCW specifically, but added Chairman Charles Schwab "has indicated that he is not opposed to looking at money management buying opportunities. While we can't comment on TCW specifically, we can't rule out that we would be interested in (money manager) acquisitions at some point."
One investment consultant, who asked not to be named, said he expects large European banks and financial services companies to express substantial interest in TCW. But, he said, State Street Global Advisors, Boston, could emerge as a potential suitor.
"It will be the foreign firms with deep pockets who will have the most interest - those who have a history of buying companies and then leaving them alone," he said.
He said it will take a large disciplined financial services firm to pull together TCW's diverse operations, which include more than 50 asset management strategies in institutional separate accounts and mutual funds.
"They have lots of pieces, some good and some not so good, but they really have no real focus, no overall business strategy and there is no cohesiveness to their investment philosophy. They could benefit from some discipline and strategic guidance," said the pension consultant.
State Street executives also have said publicly the firm wants to buy a money management firm within the next nine months to expand assets under management and to increase its actively managed investments.
State Street has about $276 billion under management, more than half of which is passively managed. State Street also has about $7.9 billion under management in 14 mutual funds.
A spokeswoman for State Street said it would not comment on any potential acquisitions.
A former senior executive at TCW, who also asked to remain anonymous, said he too expects the firm to be acquired or to merge with "a big foreign firm . . . that is interested in total coverage of the U.S. market. . ."
He noted Mr. Day said in the letter that TCW is undertaking a "strategic review" of its business alternatives.
Said the ex-TCW executive: "They wouldn't be doing this if they were just considering an alliance; they probably have something in mind already.
"I'm assuming they have a bid sitting on the table already and are trying this approach to see if there are other bidders and see if they can push up the bid price."
A TCW spokesman said the firm is "not shopping itself," but rather evaluating various options.
Clients weren't fazed.
Sharon Parkes, manager trust investments at Halliburton Co., Dallas, said the TCW letter can be interpreted in two ways. "Either they are already planning to do something, or they are preparing us for that possibility." TCW manages a $67 million fixed-income portfolio for Halliburton.
A spokesman for the $100 billion California Public Employees' Retirement System, Sacramento, said TCW manages a $755 million international equity portfolio for the fund.
He said the possible change of ownership would not be a concern for the system "as long as they continue to provide the same level of service . . ."
