Liberty Financial Cos.' pact to buy Societe Generale's U.S. asset management arm has fallen apart because of asset shrinkage at the French company's unit.

The $216 million deal, which was announced in August, allowed Liberty to back out if Societe Generale Asset Management Corp.'s assets fell 30%. By early this year, assets in the handful of mutual funds that the French bank's New York-based unit manages had fallen 40%, to $3 billion.

"Had this been a minor fluctuation, we could have worked out a (lower) price," said Kenneth R. Leibler, president and chief executive officer of Boston-based Liberty, which has $61 billion of assets under management. "We were looking at a substantial dilution to our shareholders if we bought it at that level."

Investors had redeemed their shares of SoGen Funds on a massive scale because of their poor performance and also possibly because of anxiety about the sale, according to Jean-Marie Eveillard, principal portfolio manager and minority owner of SoGen Asset Management.

However the deal's failure does not presage trouble on the mergers and acquisition front for other asset managers, said Thomas W. Courtney Jr., president of the Courtney Group, a New York investment bank.

"It doesn't change the landscape, it just points to frailties of dealmaking," he said. "Even up to the last minute, any deal can fall apart."

Mr. Eveillard said he was disappointed but "relieved because the yearlong uncertainty has finally dissipated."

Societe Generale has yet to declare whether it will seek a new buyer.

Mr. Eveillard said it may not try to sell the unit right away because shareholders in the French bank might be wary of approving another deal so soon.

SoGen Asset Management's funds have performed poorly in recent years because of their value-oriented investing style and focus on small and midsize overseas stocks.

Industry watchers said that Mr. Eveillard's company remains a quality outfit that is simply trapped in an unfavorable market. But Liberty, its stock trading at a mere 80% of book value, cannot afford to make such a questionable deal, said Neil Epstein, an analyst at Putnam, Lovell, de Guardiola & Thornton Inc., a New York investment bank.

"Their stock price is under enough pressure," he said.

Liberty, a holding company for an array of asset management and insurance companies, originally pursued the deal to give it more overseas investing reach. The company still wants that reach but is not in "any particular rush" to buy another company, Mr. Leibler said.

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