The latest development in the ongoing Pioneer Group saga came last Friday when Pioneer announced that it had authorized Merrill Lynch and Salomon Smith Barney to "actively explore those alternatives that would maximize shareholder value."

Pioneer hired the two investment banks as consultants a few weeks ago, so the import of Friday's announcement is still unclear. "I have no idea what it means," said Rick Bennett, director of governance for Lens Investment Management. Lens is an activist investor group and the owner of a significant stake in Pioneer.

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"If it means they're going to stop talking and actually do something, it would be welcome news," Bennett continued. "I would think that this announcement would invite bids. We think a public auction is the best course of action."

Whatever they're planning, Pioneer isn't saying much. A Pioneer spokesperson, explained that Merrill and Salomon were previously engaged to "analyze and evaluate" the alternatives, while they're now "exploring" the alternatives. Does that include seeking bids for the company? "They are exploring the alternatives, including a possible sale," she says.

Charting A Bumpy Course

Pioneer's fund business hasn't been booming lately, but that's not the primary cause of its trouble. The company has traditionally been oriented to value funds, a philosophy that hasn't helped its recent performance. But while their funds haven't been great, "they've been hit on par with rest of value companies," said Kelli Strebel, an analyst for Morningstar. "Redemptions haven't been too bad. There are far worse stories."

The real problem is Pioneer's other businesses, which include high-risk ventures in gold mines and Eastern Europe. "Management has been distracted by its foreign exploits, when they should have been paying attention to their mutual fund business," said Rick Bennett.

Geoff Bobroff, president of Bobroff Consulting, agreed. "John Cogan has been off doing other things that have compounded the company's problems," he said.

Being publicly owned, the company has less margin for error than its competitors. "The problem with being publicly owned is that they're not in control of their own destiny," said Bobroff. "Shareholders have great expectations." Apparently, those expectations haven't been met.

Despite the trouble, Pioneer's mutual fund business isn't beyond redemption, said Strebel -- "Relative to other parts of the company, the mutual fund business looks a lot better." Value funds will probably rebound at some point, added Strebel, and Pioneer's expertise in that area will be of some value. In addition, the company has "good emerging markets and Asia funds."

The Road Ahead

What's going to happen now? Almost everyone familiar with the situation sees a sale. "It makes a lot of sense to spin off the mutual fund business instead of having it dragged down by African gold mines," said Strebel.

Bobroff agreed, "I think Cogan is looking for a white knight to bail him out. I also think that whoever buys the company will want Cogan do some housecleaning."

Whatever happens, time is of the essence. "Lens has been applying pressure. If a couple more investors jump on the bandwagon, we'd probably see an acceleration," said Strebel.

On the outside, Lens has filed a preliminary proxy statement and plans to challenge the incumbent board at Pioneer's annual meeting on May 16.

 

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