The widely reported, but not yet announced, $3.9 billion deal to sell Putman Investments to Power Corp. of Montreal could mean the end of a bumpy road for the Boston investment firm and its New York parent, Marsh & McLennan Cos. Inc.
It also would provide the Canadian company with long-desired access to the large and growing American retirement market.
But taking over the reins would require Power to pay close attention to Putnam's 401(k) business, observers say.
"Acquisitions or any kind of change, really, lead many plan sponsors to reevaluate their investment decisions," said Chip Roame, managing principal of Tiburon Strategic Advisors, a research and consulting firm near San Francisco. "Believe me, every other fund company will be calling Putnam's customers."
But industry experts say that Putnam's customers would stay put, so long as the new owner highlights the scandal-smeared unit's recent recovery and makes an effort to introduce itself in American markets.
"People have already taken potshots at Putnam," said Lynn Siewart, founder of Advanced Corporate Planning, a pension and 401(k) consulting company in Vancouver, Wash.
The 401(k) customers who stuck with Putnam through its scandals are unlikely to be spooked by new ownership, he said, but it would be critical for Power to put in the effort to explain what changes it would - or would not - bring to the company.
"The difficulty with a Canadian firm owning Putnam is that it's pretty much an unknown" company in the United States, Mr. Siewart said. "Most brokers doing work in the 401(k) arena are really generalists, so they're going to have to put more feet on the street and be ready, willing, and able to work with existing clientele."
Though Power, which is controlled by the Desmarais family, is a relative unknown on this side of the border, back in Canada it owns eight financial services companies, including the $90 billion-asset IGM Financial Inc. and the country's largest mutual-fund distributor and investment advisor, MacKenzie Financial Corp., which offers over 100 mutual funds and has already started to enter the U.S. market.
Power also owns Great-West Lifeco Inc., an insurance company with operations in the United States, Canada, and Europe.
"It's not like they're a Johnny-come-lately," said Mr. Roame, who noted the company's past acquisitions. "Experience would suggest they bring stability."
Selling a U.S. mutual fund company to a Canadian firm is not unprecedented, either. Sun Life Financial Inc. of Toronto bought - and recently decided not to sell - MFS Investments of Boston. Likewise, Manulife Financial Corp. of Toronto owns John Hancock Financial Services in Boston.
"Neither one of those deals showed any form of Canada-phobia," said Louis S. Harvey, a principal at Dalbar Inc., a Boston research and ratings firm that focuses on measuring intangibles, such as customer behavior.
What Power would really be buying is Putnam's 60-plus years of U.S. experience, Mr. Harvey said. In the past Power has been known to leave acquired management teams in place, and early reports suggest their treatment of Putnam would be no different, he said.
Donald Sowa, the president of Sowa Financial Group Inc. in East Providence, R.I., said, "If Putnam has one strength, it's probably that they have established a strong relationship with the independent adviser community."
For Power, that would mean immediate access to the $200 billion fund company's 401(k) network, which Mr. Harvey said is positioned to grow quickly, as a result of the Pension Protection Act of 2006 signed in July.
Already, the U.S. mutual fund market is 10 times as big as Canada's, he said.
Mr. Sowa warned that to capture retirement market share from competitors like Vanguard Group Inc. and Fidelity Investments in the retirement space, Power would have to try to trim the funds' expense ratios. He also said he had hoped Putnam would be spun off, rather than sold, to eliminate a layer of fees.
Still, according to Mr. Roame, Putnam is poised for a turnaround, and the groundwork already has been laid. The new management team - led by Michael Cherkasky, previously Marsh & McLennan's chief executive - already has implemented significant and positive changes, and performance has been strong, Mr. Roame said.
Bill Bergman, an equity analyst at Morningstar Inc. in Chicago, who covers Marsh, said Mr. Cherkasky "has a solid reputation and real, meaningful leadership skills."
Mr. Bergman also said he was impressed by the enthusiasm the former underling of Manhattan District Attorney Robert Morgenthau showed for the business during an investor day last month.
The sale also would be "healthy" for Marsh, Mr. Bergman said, because the company now can pursue its stated goal of focusing on its "core" businesses, which enjoy better synergies.
Because Power has no existing 401(k) business in the United States, there would be no funds to merge, and layoffs likely would be minimal. Mr. Harvey said that even though the Putnam name was tainted during the late-trading and soft-dollar scandals in 2003 and 2004, those troubles have passed and will be remembered as a blip in an otherwise long and steady history. As a result, he does not foresee a name change.
"Anyone would see through a name change in a heartbeat," he said. "I think it won't be long before Putnam's problems are forgotten. All the firm has to do at this point is to produce strong investment results and assert strength in the market."
Parting with Marsh could help Putnam, too, since Marsh has had its own share of problems with regulators. "One person's regulatory problems is the other's. They are attached at the hip," Mr. Sowa said.
News of the deal - even though it involves a name unknown in the United States - at least will send a message that both Marsh and Putnam may have a fresh start, he said.
In fact, Putnam has been quietly preparing wholesalers for the ownership change over the past two weeks or so, Mr. Sowa said. "They want everyone to know, 'Don't rush to judgment.' "
Ms. Glover is an associate editor of
