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Invesco buying Morgan Stanley unit

Morgan Stanley said yesterday it will sell its retail asset management business, including the Van Kampen division, to money manager Invesco Ltd for US$1.5 billion in a move to focus on institutional clients.

The deal, which includes US$500 million in cash and 44.1 million shares, will make Morgan Stanley Invesco’s largest shareholder, with a 9.4 percent equity stake. It boosts Invesco’s assets under management by US$119 billion to about US$536 billion.

New York-based Morgan Stanley said the sale allows it to focus on institutional clients such as pension plans, endowments, sovereign wealth funds and central banks, among others.

“By taking a minority interest in Invesco, Morgan Stanley will be able to realize significant value in partnership with a world-class player,” said Morgan Stanley co-president James Gorman, in a statement. “In addition, this transaction will mitigate certain affiliated product sales restrictions faced by Van Kampen portfolio managers since the closing of the Morgan Stanley Smith Barney joint venture.”

The transaction, which has been approved by the boards of both companies, is expected to close in the middle of next year.

At closing, Invesco will have about 700 investment professionals across all major global markets. Chief financial officer Loren Starr said the company expects the deal to add 11 percent to profit in the first 12 months after closing.

Despite the recent market rebound, Atlanta-based Invesco has continued to be hurt by sharply falling markets last year and early this year that reduced the value of the assets it manages for retail, institutional and wealthy clients around the world. The company’s second-quarter profit shrank by nearly 54 percent, as the value of the assets the company manages declined, eroding investment-fee revenue.

As of Sept. 30, assets under management totaled US$417 billion, up slightly year-over-year. Invesco was scheduled to report results for the third quarter yesterday.

In the second quarter, Morgan Stanley’s asset management operations reported a slightly wider pretax loss of US$239 million.

Assets under management at June 30 tumbled to US$361 billion from US$579 billion a year earlier. The decline reflected net customer outflows of US$121.5 billion over the course of the year, mainly in the company’s money market and long-term fixed income funds.

Morgan Stanley said its investment management group would include several institutional-focused businesses, including a long-only business (equity and fixed income), a direct hedge fund business, and a fund of funds business. It also will include a liquidity business and a merchant banking business, with the bank’s real estate, private equity and infrastructure units.

In Japan, Morgan Stanley Investment Management’s (MSIM) equity management operations will be sold to Invesco as part of the transaction, but the bank will retain its fixed income investment team and a sales and client service team to serve Japanese investors.
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