Great-West to buy Putnam

After months of speculation, Great-West Lifeco has come out on top of a long list of suitors to purchase the recovering Boston-based Putnam Investments Trust for $3.9 billion US.

Great-West Lifeco is a subsidiary of Power Financial Corp., which also controls London Life, Canada Life, Investors Group and Mackenzie Financial. The deal allows Power Financial the opportunity to expand its financial services group in the United States and Europe in a single step.

“This transaction gives us a strong presence in the growing U.S. retail and institutional investment management markets and substantially strengthens our competitive position in international markets, including Europe and Japan,” said Great-West Lifeco president and CEO Raymond McFeetors. “It complements our strong and growing presence in the U.S. retirement savings market.”

The deal, which is still subject to regulatory approval, combines the 10th largest mutual fund manager in the U.S. with the fifth largest life insurance carrier in North America. The merger is expected to close at the end of Q2; when it does, the combined company will have $420 billion in assets under administration.

Great-West has been courting Putnam since mid-December. It’s an attractive deal. Great-West picked up Putnam at 14.5-times earnings when industry multiples are at 22-times earnings.

There has been a lot of talk among industry insiders about the fate of the U.S. investment firm since it underwent a valuation check in September. Putnam has had its share of struggles in recent years. Ed Haldeman, the company’s president and CEO, was quite open about those issues during a press conference Thursday morning to announce the deal. “Putnam had some performance struggles in 2000, 2001, 2002. We had some regulatory issues following that,” he admitted.

Those regulatory problems are what brought Haldeman to Putnam more than three years ago. Since then, the firm has undergone significant changes to turn its performance around, including a 50% reduction in staff, with cuts in management and infrastructure, and through attrition, and some services being outsourced.

In keeping with GWL and Power Financial’s modus operandi not to interfere with the operations of its subsidiaries, Haldeman and the rest of his management team will remain intact.

More recently, Haldeman suggested there was friction between Putnam and its current owner, Marsh & McLennan Companies. While Haldeman said he expects the merger with Lifeco to benefit Putnam in a number of ways, “the number-one thing is clarity of ownership, which is something that has been an obstacle for Putnam at the very least since September ’06.” He continued, “There have been issues about whether Putnam was a good fit in the business portfolio of MMC, so there has been some uncertainty there that has been troublesome in the marketplace.”

In announcing the deal, Haldeman said he is pleased with the arrangement because of the limited overlap between Putnam and Lifeco. “It was a positive that in the Power Financial companies there wasn’t somebody who was a U.S. fund retail company because we knew that would give us our own identity; it would make sure our program and investment teams would remain in place, so there were some competitive advantages that we saw in the Power Financial group of companies.”

Putnam has a large distribution and service capability. Although it has funds in every category, its strength has typically been in fixed-income products. Currently, it serves 169,000 financial advisors and maintains nine million shareholder accounts.

In terms of the Canadian market, the merger will have little immediate impact on advisors. “We have had Putnam funds on our shelves for a number of years,” said McFeetors. “In recent years, it has not been as active a mandate as it had been in earlier years. I don’t think there will be a large impact in the initial years, but over time, it could grow.”

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(02/01/07)