The Janus Thriller Plot Thickens
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Tuesday, December 03, 2002

The Janus Thriller Plot Thickens

The Janus and Stilwell production of Oedipus may undergo another rewrite. An offshore hedge fund and major shareholder looks to be opposing the fund firm's plan to do away with its parent Stilwell Financial at the end of the year. The bump in the fund firm's plans comes as the firm appears to be on the verge of winning the assets of its sister firm, Berger Financial.

Yesterday, Cayman Islands-based Highfields Capital Management filed paperwork (view on SEC Web here) with the SEC disclosing that it has hired the Blackstone Group to explore reorganization alternatives to the plan proposed in October by Stilwell and Janus management. The filing revealed that Highfields, a hedge fund, has held talks with Stilwell, other shareholders and even third parties as part of an effort to find an alternative solution to Janus' problems.

The discussions with included an exploration of possible spin-offs, recapitalizations, self-tender offers, or a sale of all or part of the company, according to the filing. The goal of any action would be to "better enhance the value of the shares," the filing added.

More bad news for Stilwell management is that the fund is what the fund industry usually calls "hot money." It is anything but a long-term investor seeking to slowly grow its stake and do the right thing for shareholders in Janus funds. Highfields bought its first shares in Stilwell in September, just two months ago. By November its stake grew to 13.1 million shares purchased at prices between $10 and $14 per share. As of yesterday, the hedge fund had added another 2.5 million shares to control 15.6 million. All together, it now owns a seven percent stake in the firm. That holding is the reason the firm needed to file its intent with the SEC. (Other large institutional shareholders include TCW with a 10 percent stake and Fidelity, whose funds own 5.3 percent of the firm).

The filing reveals more about Janus than just Highfields plans to milk more dollars from its investment. It also signals just how wounded the fund firm has become in the eyes of the market. A quick look at Highfields past stakes provides a glimpse of the neighborhood in which the Denver-based fund firm now resides.

This year Highfields fought a battle with the management of Reader's Digest over whether that firm should maintain two classes of shares (the publisher won't). It also built a stake in the then failing Adelphia to try to force that company's management to find a buyer rather than file chapter 11 (the hedge fund lost that fight). Its highest profile battle was with the management of Enron last year. The fund's Richard Grubman publicly question the energy firm's accounting and the skills of CEO Jeff Skilling prior to what became the nation's largest bankruptcy filing.

Let us hope Mark Whiston, Janus CEO-designate, and Landon Rowland, soon-to-be-ex-CEO of Stilwell, have sharpened their elbows. They may well soon need them.

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