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Monday, September 11, 2006

MFS Bidders Emerge

by: Neil Anderson, Managing Editor

In just over a month, MFS has jumped out of its comfortable auction house bidding chair and onto the stage. Who's buying? Sources told the MFWire that Ameriprise and T. Rowe Price are both bidding for Sun Life's asset management arm (which had $168 billion in assets under management at the end of the second quarter). For the moment, at least, it appears that Ameriprise may be winning.

Spokespeople for MFS and Ameriprise declined to comment. A spokesperson for T. Rowe Price could not be reached for comment.

One industry insider claimed that, as late 10 days ago, T. Rowe Price was still the lead bidder, negotiating with Sun Life over how much of MFS the Canadian insurance behemoth would be allowed to hang onto; but Ameriprise came back with a new offer and is now in the lead.

But the fat lady isn't singing yet. A source close to the deal confided that Sun Life is still hung up about whether or not it wants to retain a stake in MFS: Ameriprise reportedly wants the whole shebang, while Sun Life had negotiated T. Rowe Price up to leaving Sun Life with 20 percent. Another source claimed that T. Rowe Price was trying to figure out how to reduce the deal's golden parachutes for top MFS executives.

But why is Sun Life now a seller and not a buyer (in August, the MFWire reported that Sun Life was looking to buy another fund firm, possibly Janus, to merge with MFS)? The arguments against a sale of MFS still seem valid: Sun Life would still be hit by massive taxes (Sun Life paid a mere $83 million for MFS back in the 1980s) and be pressured to distribute money as dividends (unless it were rolled over into a new acquisition); MFS still contributes a lot to Sun Life's bottom line; and Sun Life's two insurance rivals in Canada, Great-West and ManuLife, are still players in the American asset management business.

However, the MFWire has learned that Sun Life's president and global chief operating officer, Jim Prieur, the last strong advocate for keeping and strengthening MFS, has left the firm and joined Conseco. In the words of one insider, maybe Sun Life just thought that "now is the time to sell it."

Do Ameriprise and T. Rowe Price make sense as bidders? Industry insiders are not sure. Some pointed to MFS' strong third party distribution as a good match for RiverSource, Ameriprise's mutual fund arm, and that RiverSource could use MFS' solid internal asset management. Others see MFS' "very strong distribution group" meshing well with T. Rowe Price's "outstanding performance".

"It makes sense for T. Rowe Price, if a little out of character," an insider explained. "They need broker distribution."

However, another source told the MFWire that T. Rowe Price plans to simply liquidate MFS' broker distribution and keep the combined fund shop in the direct distribution channels (along with 401(k)s and financial planners).

One final interesting note to keep in mind: what do Ameriprise, T. Rowe Price, and Janus all have in common?

"They're all good fits," one source mused, "and they're all public entities." 

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