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Janus Capital-Henderson Group Agree on an All-Stock Merger

JNS BLK VRTS APO

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Janus Capital Group, Inc. (JNS - Free Report) and London-based Henderson Group plc have entered into a merger agreement that would lead to the creation of an active asset manager with over $320 billion in assets under management (AUM). The deal, referred to as an “all-stock merger of equals”, is expected to close in second-quarter 2017.

The firms anticipate this transaction to result in “significant cost savings and revenue growth opportunities.”

Per the deal, a newly formed subsidiary of Henderson will merge with Janus Capital, with Janus as the “surviving corporation” and a subsidiary of Henderson. Each share of Janus Capital common stock will be exchanged for 4.7190 new shares in Henderson. While shareholders of Janus Capital are expected to own 43% of the combined company, Janus Henderson Global Investors plc, Henderson shareholders will hold 57%.

With a combined market value of about $6 billion, the new entity will apply to trade on the NYSE as its primary listing.

Janus Capital’s largest shareholder – Dai-ichi Life – is supporting the merger. Post merger, Dai-ichi will hold around 9% of the combined company and intends to further extend its ownership interest to at least 15%.

In a statement released on Monday, Dick Weil, Chief Executive Officer (CEO) of Janus Capital stated, “This is a transformational combination for both organizations. Janus brings a strong platform in the U.S. and Japanese markets, which is complemented by Henderson’s strength in the U.K. and European markets. The complementary nature of the two firms will facilitate a smooth integration and create an organization with an expanded client-facing team and product suite, greater financial strength, and enhanced talent, benefiting clients, shareholders and employees.”

As of Jun 30, 2016, Henderson had AUM of £95.0 billion while Janus Capital had AUM and ETP assets totaling $195 billion.

Strategic Deal

The proposed merger leads to the formation of an entity with a diversified product profile, investment strategies and enhanced global distribution. The firms stated that the increased economies of scale are likely to result in improved profitability and greater efficiency.

The firms are targeting annual run rate net cost synergies of at least $110 million, to be weighted toward the first full year and expected to be fully realized three years post closure.  The companies also project one-time costs to be incurred in the range of $165–185 million in order to achieve the recurring cost synergies target.

Excluding one-off costs, synergies from the merger are anticipated to result in double-digit accretion to the earnings per share of both the companies in the first 12 months. The firms also believe that following integration, the combined company will generate around 2–3% additional net new money.

The new entity is expected to maintain a progressive dividend policy, with a payout ratio consistent with the current practice of Henderson.

The board of directors of Janus Henderson Global Investors will comprise an equal numbers of directors from Henderson and Janus Capital. Henderson Chairman, Richard Gillingwater will become Chair of the combined board while Glenn Schafer of Janus Capital will be Deputy Chair. The new entity will be run under the leadership of Co-CEOs Andrew Formica (CEO of  Henderson) and Dick Weil.

Bottom Line

The latest development, undoubtedly , seems like an effort by Janus Capital to boost its profitability and enhance its shareholders' value. The company has grown meaningfully over the years and has been expanding its business through strategic investments and diversification intiatives. However, its profitability remains challenged by escalating costs and persistent negative performance fees. Year to date, shares of Janus Capital have lost 0.6%.

Janus Capital currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the finance sector include Apollo Global Management, LLC (APO - Free Report) , Virtus Investment Partners, Inc. (VRTS - Free Report) and BlackRock, Inc. (BLK - Free Report) . While both Apollo Global and Virtus Investment sport a Zacks Rank #1 (Strong Buy), BlackRock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Apollo Global has been witnessing upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 climbed significantly to $1.67 per share. The company’s share price gained 3.5% over the past six months.

Virtus Investment has been recording upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2016 advanced 2.1% to $5.26 per share. Over the past six months, the company’s share price surged 28.7%.

BlackRock has been witnessing upward estimate revisions as well. The Zacks Consensus Estimate inched up slightly to $19.25 per share for 2016, over the last 60 days. The company gained 5.8% over the past six months.

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