Henderson Group Plc. (HGG) – Market cap as of 07/10/2016: £2.86bn ($3.55bn)

Janus Capital Group Inc. (JNS) – Market cap as of 07/10/2016: $2.54bn

Introduction

On October 3, 2016, the two asset managers Henderson Group Plc. and Janus Capital Group Inc. announced that they will combine their assets in a $6bn merger of equals. This all-share transaction will give rise to Janus Henderson Global Investors Inc., a large asset management firm with over $320bn AUM (Assets Under Management).

About Henderson Group

Henderson Group Plc. is an independent global asset manager, specializing in active investments. Founded in 1934 to manage the estates of Alexander Henderson, the first Lord Faringdon, it got listed on the London Stock Exchange for the first time in 1983. In 1998, Henderson was acquired by the Australian financial services company AMP, from which it eventually demerged in 2003. Headquartered in London with 19 offices spread around the world, Henderson’s core areas of investment are European equities, global equities, global fixed income, multi-asset and alternatives. As of June 2016, it manages £95bn assets on behalf of its clients.

About Janus Capital Group

Founded in 1969 in Denver, Colorado, Janus Capital Group Inc. is a global investment firm with about $195bn AUM as of June 2016. The Firm operates through subsidiaries like Janus Capital Management LLC, as well as INTECH, Perkins and Kapstream. Along with its activities focused on fixed income, equities, multi-asset and alternative investment solutions, Janus is also an ETF (Exchange-traded funds) provider. Currently listed on the New York Stock Exchange, Janus has offices located in 12 countries across North America, Europe, Asia and Australia.

Industry Overview

The Asset Management industry has seen drastic transformations in the last decade. The most important trend is the growing popularity of passive, index tracking funds. According to Morningstar, since 2007 passive funds AUM have grown by over 200% to over $3tn, while active funds AUM have grown by 50%. Though globally active funds still manage 83.3% of investor money against 16.7% in passive funds, investors’ preference steadily shifts towards passive funds.

Asset outflow from active funds is caused by both high costs and disappointing returns. Though average active management fees are decreasing, ETFs fees are much lower. Moreover, in 2014, 2015 and 2016ytd, average active fund returns lagged the market, with over 80% of active managers failing to beat their benchmark. Therefore, due to low cost and guaranteed market return, passive funds are becoming more popular among investors.

In the wake of these transformations, active asset managers are seeking to cut costs and benefit from the economies of scale. Therefore, Janus-Henderson deal is widely perceived as a defensive measure, and further consolidation in the industry is expected.

Top five asset managers in the world are BlackRock ($4.7tn), Vanguard Group ($3.4tn), UBS ($2.7tn, including Wealth Management), State Street Global Advisors ($2.3tn) and Fidelity Investments ($2.1tn). With $320bn AUM, Janus Henderson Global Investors is expected to be among top 20 independent asset managers in the world.

Deal Structure

Both Boards of Directors have unanimously agreed to an all-stock merger, where each share of Janus will be exchanged for 4.179 newly issued shares of Henderson. The resulting company will be named Janus Henderson Global Investors plc. The company will be co-led by both CEOs, Dick Weil of Janus Capital and Andrew Formica of Henderson Group. The co-leadership should guarantee smooth integration of the companies.

Though Janus-Henderson deal is referred to as a merger of equals, shareholders of Henderson will control over 57% of the combined company, while shareholders of Janus will hold the remaining 43%. Janus’ largest stakeholder, Dai-Ichi, has committed to vote in favour of the deal, and will own 9% of the resulting company.  Dai-Ichi has also declared that it would like to increase its investment in Janus Henderson to at least 15%.

The deal, expected to close in the second quarter of 2017, is still subject to shareholder and regulatory approvals.

Deal Rationale

Creating an organization strong of around 2,300 employees based in 29 locations around the world, the merger will bring an increased distribution strength and exposure to key markets, including the U.S., Europe, Australia, Japan and the U.K., as well as a growing presence in the Asia-Pacific region, the Middle East and Latin America. Janus Henderson Global Investors’ AUM by region on a pro forma basis are expected to be approximately 54% Americas, 31% EMEA and 15% Pan Asia.

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The complementary activities performed by the two businesses, the complementary nature of the brand attributes and their global presence are ideal for the creation of a broader integrated platform that will allow the newly formed entity to better serve its clients on a global scale. Furthermore, the integration of the two businesses is facilitated by the compatibility of their cultures which are driven by client-centric values and a minimal overlap of investment strategies and client assets. The merger will also come with a major bottom line benefit. Indeed, the merging entities are targeting annual run rate net cost synergies of at least $110 million for the first 12 months following completion. Synergies are expected to be fully realized after three years from completion and are expected to account for 16% of the combined group’s underlying $700m EBITDA. One-time costs for the merger are expected to reach as much as $185 million as both companies analyze overlapping costs such as IT and legal. According to Dick Weil, CEO of Janus “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” while Andrew Formica, CEO of Henderson added “Henderson and Janus are well-aligned in terms of strategy, business mix and most importantly a culture of serving our clients by focusing on independent, active asset management”.

Market Reaction

The market reacted positively to the deal news. Upon the announcement, Henderson shares leapt by 16.7% to 270.7GBp per share, while Janus shares jumped by 13.2% to $15.85 per share. As of today (8th of October), Henderson and Janus shares are traded at 8.8% and 2.7% premium to pre-announcement price respectively. This gives the combined company market capitalization of $6.1bn.

 

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2 Comments

Adeshola · 15 October 2016 at 7:22

You guys are doing a great job, you just earned another follower, I would however suggest that, you put sources for your figures and quotes to increase the authenticity of your work.

BSIC · 20 October 2016 at 19:06

Dear Adeshola,

Thanks for your comment and for following us. We always try our best to state our sources when using charts / tables. Thanks for your suggestion. We hope you will continue enjoying our articles.

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