Bank of America Corp's
The bank said on Wednesday it expects to close the sale of the Columbia Management's long-term asset management business to Ameriprise Financial Inc
The business duplicates similar operations at newly-acquired Merrill Lynch.
When you've got the 64,000 pound gorilla, in the case of Merrill Lynch's asset management business, you don't need the Chihuahua, said Tony Plath, a University of North Carolina at Charlotte banking professor.
The deal is a sign of the times for financial services transactions, analysts said.
While in line with other, recent asset manager sales, the price was far below the premiums seen during the economic boom, analysts said.
In buying much of Columbia, Ameriprise is paying about 7 times the expected earnings of the unit before interest, taxes and depreciation, a company spokesman said.
That is well below the historic average of about 11 percent for deals in the asset-management industry, according to data from Jefferies Putnam Lovell, the investment banking arm of Jefferies & Co.
The deal will push Ameriprise above $400 billion in assets under management, making it the eighth-largest U.S. mutual fund manager with a global presence, its Chief Executive Jim Cracchiolo said.
Ameriprise had $165 billion in equity and fixed income assets under management at the end of June.
OTHER SALES AHEAD?
Columbia's long-term management sale, and potential sales of Columbia's other units, is unlikely to be a significant gain for Bank of America, Citigroup analyst Keith Horowitz said in a research note.
Horowitz estimates Columbia's short-term asset management unit could return $250 million to $350 million in a separate transaction.
Bank of America is also attempting to sell Merrill's First Republic Bank, according to media reports, the private banking business inherited from January's merger.
Jefferson Harralson, a Keefe, Bruyette & Woods banking analyst, said the drawn-out negotiations in the Columbia deal may be a harbinger for any potential sales.
They've got the flexibility to take their time and make the right economic decision with these businesses, he said.
The Charlotte, North Carolina-based financial giant announced Columbia's possible sale as part of a broader capital plan in May, when the results of federal government stress testing for the 19 largest U.S. banks mandated, in many cases, that they raise additional capital.
Ameriprise CEO Cracchiolo said Columbia's sale began in April and was an auction-type process involving several rounds of bidding.
He said Bank of America initially offered all of Columbia, but backed away from that approach during the bidding, instead resolving to sell only the long-term asset management division.
That's what we really wanted to complement our business, Cracchiolo said.
A Bank of America spokesman did not dispute Cracchiolo's description of the bidding process but declined to comment further.
Bank of America shares ended down 1.4 percent at $16.92 on the New York Stock Exchange, while Ameriprise finished up 12.3 percent, also on the NYSE.
(Reporting by Elinor Comlay and Joe Rauch in New York, and Ross Kerber in Boston; Editing by Tim Dobbyn)