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FleetBoston Acquires Liberty Financial Units


The nearly $1 billion FleetBoston agreed to pay last week to acquire the asset management units of Liberty Financial, appears to be a good deal, but the real value of the acquisition will depend on how the two companies merge, according to industry observers.

There is a good chance that Liberty Financial of Boston would have been able to command a better price a year ago, but market conditions have diminished assets and may have damaged otherwise attractive acquisition targets, according to Anthony Nuland, a partner in the Washington D.C. office of Seward & Kissel of New York.

"This may look a little cheaper than the acquisitions of a year ago," he said. "You were looking at a fairly consistent growth of assets." However, when a company acquires an asset manager today, there is a good chance that its new acquisition is bleeding assets, he said.

FleetBoston's acquisition of Liberty Fianancial's asset management units adds $51 billion in assets, making FleetBoston, of Boston, the twenty-ninth largest investment manager, up from forty-second, according to FleetBoston.

Having a wide variety of proprietary products is a good strategy for a bank like FleetBoston, according to Chip Roame, a principal with Tiburon Strategic Advisors of Tiburon, Calif.

"It makes a lot of sense for FleetBoston," he said. Many consumers are moving out of bank products and are investing in mutual funds and other investment products, he said. By adding Liberty's products, FleetBoston can offer its clients more proprietary products, he said.

The added assets should improve FleetBoston's margins and allow the firm to spread expenses across more companies, according to Ramy Shaalan, senior funds analyst at Wiesenberger/Thomson Financial of Rockville, Md. Thomson Financial is the publisher of this newsletter.

Exactly how the pieces of each company will fit together is not entirely clear, but there does appear to be some similarly focused funds that FleetBoston could merge, he said.

FleetBoston will pay $900 million in cash and will assume approximately $110 million in revolving debt to finance sales commissions, according to Liberty. The sale is expected to close in the second half of this year, according to the company.

In acquiring Liberty Financial, FleetBoston picked up an amalgamation of asset management companies that includes Colonial Management Associates of Montgomery, Ala., Crabbe Huson Group of Portland, Ore., Newport Pacific Management of San Francisco, Progress Investment Management of Boston, Stein Roe & Farnham and Liberty Wanger Asset Management, both of Chicago. The sale also includes Liberty Asset Management and its operations units, including Liberty Funds Distributor and Liberty Funds Services, all of Boston.

Fleet Investment Advisors sells funds through its two subsidiaries, Columbia Funds of Portland, Ore. and Galaxy Funds of Boston. Columbia sells 15 no-load funds, separately-managed accounts and private wealth management while Galaxy sells 30 funds that are distributed through financial intermediaries.

"The acquisition of Liberty Financial's asset management businesses gives us greater scale in all our distribution channels," said Brian Moynihan, executive vice president in charge of FleetBoston's brokerage and wealth management, in a statement. "We will add more than 250 distribution professionals as a result of the Liberty Financial acquisition. The acquisition also gives us additional proprietary product to offer through our brokerage firm, Quick & Reilly, and Fleet's Private Client Group. "

Liberty had announced last November, in a shareholder report, that it was selling its asset management, insurance and banking units. In April, Liberty sold its annuity and banking units to Sun Life Financial of Toronto for $1.7 billion. Its insurance products had $14.8 billion in assets under management.

There was speculation that Liberty was struggling to find a buyer for its asset management units for a number of reasons including that its asking price was too high, market conditions were poor, that it was comprised of companies that were too diverse and independent of one another and that there might be due diligence problems. (MFMN 5/14/01).