A bidding war has erupted over British money manager Gartmore PLC - and NationsBank Corp., which recently entered a joint venture with the firm, is holding some of the high cards.
On Friday, Paris-based Banque Indosuez placed its 75% stake in Gartmore on the market. The action triggered NationsBank's option to buy up to a 25% position in Gartmore, which manages $34.5 billion in pensions and other institutional investments.
The option, formally a right of first refusal, gives NationsBank first crack at Gartmore, and ensures that the Charlotte, N.C., banking company will have a say in the outcome of any deal for the firm.
"NationsBank wanted to have some protection in case Indosuez at some future date wanted to sell its shares," said Charles G. Smith 4th, chief executive of Nations Gartmore Investment Management. Nations Gartmore, which opened for business July 1, is owned equally by NationsBank and Gartmore, and administers $750 million.
While NationsBank is also weighing an outright bid for control of the company, it faces some tough competition on that front. Other companies that have emerged as prospective bidders include Merrill Lynch, ABN Amro Bank, Deutsche Bank, National Westminster PLC, and Deutsche Genossenschaftsbank, observers said.
Gartmore, known for double-digit returns on its global investments, is considered a plum acquisition for companies eying the fast-growing institutional investment market in Europe.
With market capitalization of around $800 million, Gartmore is likely to attract vigorous bidding, and could fetch a 20% premium, according to Jeffrey Lovell, a partner in the Los Angeles office of Putnam Lovell & Thornton, an investment banking firm.
A price in the $1 billion range could put the firm out of reach for any U.S. bank, Mr. Lovell said. "For a bank, NationsBank has a front-running spot. But they've got to be prepared to do a dilutive stock transaction."
While the purchase would help NationsBank build a European presence, Mr. Lovell questioned whether the bank is committed to that market. "I think the situation favors a European financial institution," he said.
Moshe Orenbuch, a research analyst at Sanford C. Bernstein & Co., agreed.
"The very reason they (NationsBank) went into this joint venture was so they wouldn't have to buy such a firm," Mr. Orenbuch said. "If they wanted to buy the firm, then they probably could have."
But NationsBank officials made clear that the bank considers itself a contender to buy Gartmore.
"That's certainly an option," said James E. Summers, president of NationsBank's trust and investment management division. "I would assume in the next 30 days there will be a significant amount of information forthcoming concerning all parties in this transaction," he added.
Under terms of its joint venture with Gartmore, NationsBank gained the right to buy 15% of the company should Indosuez sell more than 10% to a third party in a private sale. Additionally, NationsBank could buy another 10% under a "performance option" that depends on Nations Gartmore's ability to attract fresh assets.
Phoenix Partners, London, a mergers and acquisitions adviser that specializes in financial services companies, confirmed that it is handling the sale of Gartmore.
