Franklin Resources Inc. is buying Putnam Investments in a deal that unites two established asset management firms and offers Canada’s billionaire Desmarais family a way out of a troubled investment.
Franklin Templeton will initially pay $925 million in shares and cash to acquire Putnam from Great-West Lifeco Inc., which is controlled by the Desmarais family’s Power Corp. of Canada group.
Franklin, which managed $1.4 trillion at the end of April, has been on deal spree, including buying two alternative-asset managers over the past two years to expand in scale and capabilities. Mutual fund providers are facing pressure from investors’ shift to cheaper index-tracking funds, forcing them to trim costs and find new categories of assets to manage.
Shares of Franklin fell 2.8% to $24.01 in New York, while Great-West dipped 0.6% in Toronto.
The deal also includes as much as $375 million in contingent payments tied to revenue growth from a partnership between the two sides, Franklin Templeton said in a statement Wednesday. Great-West, one of Canada’s largest life insurers and asset managers, will have a 6.2% stake in Franklin, most of which will be locked up for five years.
“This is a compelling transaction for Franklin Templeton, and we are excited about the numerous opportunities that will be unlocked by this long-term strategic partnership,” Jenny Johnson, chief executive officer of Franklin Templeton, said in a statement.
As part of the deal, Great-West will provide an initial long-term allocation of $25 billion to Franklin Templeton to manage. Franklin said in the statement that the deal for Putnam, which was founded in 1937, expands the firm’s insurance industry and retirement assets, as well adding to its business of managing mutual funds.
Franklin will now manage about $90 billion in defined-contribution retirement assets as well as about $150 billion in insurance assets, according to the company. Franklin said it will seek to overhaul smaller funds.
For Montreal-based Power, a sale would close the book on a long-term investment that didn’t work out.
Great-West struck a C$4.6 billion ($3.4 billion) deal in 2007 to acquire Putnam, which had nearly $200 billion in assets under management at the time but was struggling to stem client redemptions.
That deal also included also included a stake in Thomas H. Lee Partners and a tax asset. Excluding those, Great-West paid about $3 billion for Putnam’s investment management operations, according to the company.
In Wednesday’s deal, Franklin Templeton is acquiring funds from Putnam that manage $136 billion. PanAgora Asset Management Inc., a quantitative shop that handles about $33 billion, is not included in the transaction.
(Updates with closing share price, additional details on original deal)
