MutualFundWire.com: Flanagan Sees Distribution Opp, Not Cost-Savings, in Van Kampen

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Tuesday, October 20, 2009

Flanagan Sees Distribution Opp, Not Cost-Savings, in Van Kampen

Marty Flanagan expects the Van Kampen deal to provide a distribution boost along with a product expansion. Speaking on an investor and media conference call Tuesday morning, the Invesco CEO described the opportunities he sees in his $1.5 billion acquisition of Morgan Stanley's retail asset management business (which includes Chicago-based Van Kampen).

Marty Flanagan
Invesco
President and CEO

The move, first unveiled on Monday night, partially frees Van Kampen from its ties to the giant Morgan Stanley Smith Barney wirehouse. (Morgan Stanley will gain a 9.4 percent stake in Invesco.) Flanagan himself hinted that the deal may help position both firms better with both wirehouses (i.e. MSSB's competitors) and other distributors.

"Van Kampen has great distribution relationships. They've been somewhat crimped in the current ownership structure," Flanagan said on the call. "This is an opportunity to further strengthen Invesco's relationships with key distributors."

Morgan Stanley isn't the only wirehouse to juggle the distributor/asset manager combination -- in fact, none of the wirehouses are completely "free" of connection with asset managers. Citi exchanged its mutual fund business with Legg Mason, though the MSSB combination brought Smith Barney into alignment with a different fund firm, Van Kampen. UBS has a wirehouse and a mutual fund family. Wells Fargo's purchase of Wachovia brought the former Wachovia wirehouse (now Wells Fargo Advisors) into alignment with a second fund family, Wells Fargo Advantage (in addition to Wachovia's Evergreen).

And Merrill Lynch swapped its mutual funds to BlackRock in exchange for a stake, only to have the sale to Bank of America put it alongside Columbia Management, too. Now BofA retains its passive BlackRock stake while finalizing the sale of Columbia's non-money market business to another distribution giant, Ameriprise.

As for the Invesco-Van Kampen deal, Flanagan noted that the move brings Invesco into the closed-end fund and UIT businesses, while expanding its value and municipal bond capabilities.

"Van Kampen's investment capabilities are highly complementary to Invesco's." Flanagan said.

Loren Starr, chief financial officer for Invesco, anticipates that Invesco will realize about $70 million in cost-savings in the first year after the deal, while costing $115 million in one-time, cash expenses for the integration of the two firms. Yet Flanagan and Starr both stressed that cost-cutting is not a big motivator for the deal.

"This is not about consolidation and cost-savings," Flanagan insisted, adding that adding to Invesco's AUM figure was also not a big factor. "Size is not the driving force for this combination."

Flanagan expects the deal to close in mid 2010.

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