Mony Group Inc., hoping to grab a bigger piece of the lucrative asset management business, sees its 3,000 insurance agents cross-selling a slew of Advest Group Inc.'s products.
Mony, of New York, announced Thursday that it intends to buy Advest, of Hartford, Conn., in a stock and cash deal worth roughly $275 million. The transaction is expected to close in the fourth quarter.
"Advest brings some additional products, including asset management capabilities and trust services," Michael I. Roth, Mony's chairman and chief executive officer, said in an interview. "We have a lot of small-business, entrepreneurial clients that need trust services as well as some of their investment products."
The move is intended to help Mony compete with larger financial services companies.
Jonathan Joseph, an analyst at Fox-Pitt, Kelton, said selling asset management services is "what the big competitors like Axa Financial have been doing, but Mony has not been big enough" to do so.
"If you're a Mony agent, and you go to somebody's house, and they pull out $5 million from their checking account, all you can offer them is some mutual funds, variable annuities, and life insurance," Mr. Joseph said. However, "if you can bring in an asset management product, you can tie the whole thing in."
But while asset management services offer a clear cross-selling opportunity, persuading Advest's 500 financial planners to sell life insurance products may not be so simple, he said.
"Everybody talks about cross-selling, but only a few companies do it well," Mr. Joseph said. However, "Mony has a fairly good variable annuity business, and that kind of thing is a more natural fit for stockbrokers."
Mr. Roth noted that Mony already sells a selection of mutual fund products through wire houses, though Advest has not been a distribution vehicle for those funds.
Since Mony went public two years ago, he said, it has engaged in "very tactical, strategic acquisitions," including the purchase of U.S. Financial Life Insurance Co. of Cincinnati and Trusted Securities Advisors, a Minneapolis broker-dealer.
"We have multiple distribution systems," Mr. Roth said. "The largest is our career agency system - professional agents who are licensed and can sell securities and insurance products." In addition, the company sells products through broker-dealers, accountants, and other financial professionals.
Advest's financial advisers offer a range of financial planning, brokerage, insurance, and asset management services to high-income and high-net-worth clients in 15 states and Washington, D.C. As of June 30, the company managed $30 billion of client assets.
The company also offers investment advisory and management services through its Boston Advisors subsidiary, as well as fixed-income and equity capital markets services to clients in selected markets.
Advest would keep its headquarters in Hartford and operate under its own brand name and management structure. Grant W. Kurtz, chief executive officer of Advest, would continue to head the firm and report to Mr. Roth.
"Their management team will remain intact," Mr. Roth said. How Advest's operations would be integrated with Mony's existing business remains to be seen, he said, but in general "we view Advest as a stand-alone operation."
Mr. Kurtz said Mony's financial and technical resources would help Advest grow its business and attract more customers. "By joining forces with Mony, we are taking an important step forward in our goal of becoming the investment firm of choice in the markets we serve," he said.
A $60 million retention plan has been formed to keep key Advest financial advisers, and Mony plans to retire Advest's existing stock options, which, at an assumed price of $31 per share for its common stock, would result in a pretax payment of approximately $16 million.
Mony expects to issue about 3.9 million shares of common stock in connection with the acquisition. The cash that would be paid to Advest shareholders would initially be financed through short-term debt, but Mony plans to replace this acquisition facility with permanent financing within a year.
The agreement says the purchase price to be paid to Advest shareholders would be fixed five days before the closing date, using the 10-day average closing price of Mony's shares at the time.
As an example, Mony said if the average closing price of its shares were $35, Advest shareholders would receive $31 per share, or a total of $275 million, based on Advest's outstanding common shares. The price could go up or down, depending on the value of Mony stock at the time, Mr. Roth said.
Advest stockholders can elect to receive the final purchase price in cash, shares of Mony common stock, or a combination of the two. The choices stockholders make will be adjusted to reflect a total purchase price of 49.9% cash and 50.1% stock to retain tax benefits in the transaction.
The transaction is expected to be treated as a tax-free reorganization, which means most shareholders who choose to swap their stock for Mony's would not pay taxes on the deal, Mr. Roth said.
Mr. Joseph noted that Advest's stock has grown dramatically in recent years - "I remember when they were trading at $6" - and so many shareholders, faced with large taxable growth, may opt for the swap.
Advest provides advice and products to institutional clients, including banks, Mr. Roth said. While Mony does not serve a banking client base, the Advest products would be good fits for many of Mony's existing clients, which include individuals and commercial clients, he said.
Mony expects the acquisition would create enough revenue and earnings growth to help the company reach its goal of a 10% return on equity, Mr. Roth said.
Overall, Mr. Joseph said, the acquisition would offer many opportunities to Mony. "It seems to fit in fairly well with their operations," and Advest is in "an area where they're trying to expand," he said.
"How they execute it is the big question," Mr. Joseph said. "In theory, what they're trying to do is good, but we won't know if it works for a couple of years."
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