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Wednesday, November 30, 2011

What Will TCW Fetch?

News summary by MFWire's editors

TCW is not for sale. That is the official word from both the management team at TCW [profile] and French parent company Societe Generale (SocGen). Yet, the denial has not stopped talk that SocGen has been quietly showing the property to potential buyers with the aim, at the very least, of determining TCW's value. Tuesday, Bloomberg picked up on the talk, reporting that SocGen is weighing a sale and that an IPO is still an option.

Sources interviewed directly by MFWire.com suggest that any sale is still in an informal stage, and that there is no "pitch book" yet on the street. SocGen has tapped investment bankers at Morgan Stanley to help explore its options and solicit interest in TCW, MFWire.com has learned.

To date, only a half dozen potentially interested parties have looked TCW, says one banker. However, a second source claims that three firms have expressed interest in making a bid on the Los Angeles-based asset manager.

Talk of a sale comes as top SocGen executives continue to publicly say that they are content to work towards an initial public offering of TCW in the next two to three years. SocGen is also exploring ways to sell other assets than TCW in an effort to raise capital for the French bank at the behest of European regulators. In September, SocGen CEO Frederic Oudea said that the Paris bank plans to dispose of most of its asset management and financial services units by 2013. He expects those moves to raise $5.3 billion in capital, Bloomberg reports.

Last quarter, SocGen may have cleared the decks for a sale by writing down the goodwill it carries on its books for TCW to $750 million, from $2 billion previously. Industry sources say that the firm is likely worth no more than $1 billion at this time and that a deal is most likely to happen in the $700 to $800 million range.

That is a far cry from what the firm was worth before the financial crisis. SocGen paid 2.2 percent of TCW's AUM when it upped its stake in the firm. With $114 billion of AUM, that last price would value TCW at $2.5 billion. SocGen purchased its initial 51 percent stake in TCW for $880 million in 2001.

Even the $1 billion figure is far more than some have been willing to pay since the 2008 crisis. Bill Sonneborn testified during the TCW v. Gundlach trial that while he was president of TCW he tried to put together a management-led buyout of the firm with the help of private equity buyers. That deal fell apart when SocGen's management became distracted by its growing problems at home.

Testimony during the trial pegged the price of Sonneborn's proposed price at $350 million, while Gundlach separately led a $300-million bid. SocGen suggested a value of $999 million, according to the testimony. That amount was a slight discount to what SocGen executives said they valued the firm, according to the testimony.

Of course, those price were for a deal proposed well before TCW's SocGen-powered purchase of rival MetWest, as TCW ousted star bond fund PM Jeff Gundlach at the end of 2009. And now any TCW sale or IPO would include MetWest's business, too.

Private equity firms would likely remain as the most interested parties in any deal. The question is whether SocGen would entertain their offers. One firm that people are already talking about its KKR. That is where Sonneborn landed after leaving TCW. He now serves as KKR's head of asset management.

SocGen executives may prefer to find a public company to buy TCW so they could do an equity and cash deal. By taking equity in the buyer SocGen would leave itself potential to take part in any gain in TCW's value over time. 

Edited by: Sean Hanna, Editor in Chief


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