Janus Takes Control of Stilwell, Berger
September 9, 2002
Denver mutual fund giant Janus' protracted fight to spin off of its parent, Stilwell Financial, of Kansas City, Mo., has yielded it a more astounding prize. Control of Stilwell.
Stilwell will merge into its largest subsidiary, Janus, at year-end and will distribute all of its products under the Janus brand name, the companies said last week.
Stilwell Chairman Landon Rowland said in a conference call that the Stilwell Kansas City offices will shut down Jan. 1, and management of the firm will shift to Janus officials.
The move could result in as many as 140 job cuts. Janus had laid off roughly half of its workforce at the end of last year [see MFMN 4/1/02].
The reorganized company will be known as Janus Capital Management. Mark Whiston, who has worked with Janus for 11 years, most recently as its president of retail and institutional services, will head the firm. He replaces Janus founder Tom Bailey, who resigned earlier this summer after holding the top job at Janus for 33 years [see MFMN 6/17/02].
Janus Capital will oversee all of Stilwell's investment management subsidiaries, including Janus, Berger Financial Group and Berger subsidiaries Enhanced Investment Technologies and Bay Isle Financial. Assets at those firms total roughly $150 billion.
Janus will also continue to control a 33% stake in recordkeeper DST Systems, as well as an 81% stake in U.K.-based Nelson Money Managers. But it is unclear whether Janus will continue its ownership in those firms. Officials said in a statement that "management will assess strategic alternatives for these investments during the coming months."
In addition, the fate of some Berger funds is in question. Whiston said that Janus officials "are exploring the possibility of merging" some of Berger's vehicles into complementary Janus funds, but he said no decision has yet been made about what will become of the Berger products.
End of the Round
Analysts said the merger brings to a close a longstanding battle between Janus and its parent, Stilwell, over the direction of the Janus' business.
"For some time, Janus has wanted to have total autonomy over the decisions it makes as an investment manager," said Brian Portnoy, an analyst at Chicago fund tracker Morningstar. "It's been a pretty antagonistic relationship. This gives Janus a much bigger say about how their company is run in the big picture."
Janus and Stilwell executives, meanwhile, said the merger is intended to cut costs and eliminate redundancies. The deal is expected to save $40 million annually, officials said. Stilwell said it expected to take a one-time charge of $36 million in the third quarter to cover severance and other expenses associated with the merger.
In addition, officials said the merger will expand Janus' ailing product line, comprised mostly of out-of-favor growth and large-cap funds, by bringing a greater range of product choices under one brand.
"Investors want more choice, more products," Whiston said in the conference call last week. "They want to decide how and where they can purchase them. They'd like to have them offered under a single, reputable, recognizable brand."
Executives also want all of the funds under the Stilwell umbrella to capitalize on inroads Janus has made in distribution via financial intermediaries [see MFMN 8/26/02]. The intermediary channel now comprises two-thirds of Janus' distribution, Whiston said.
Indeed, Janus, which is known for its direct-sold products, has filed with the Securities and Exchange Commission to offer C-class shares on 11 of its Janus Adviser Series funds. The C shares, which are commonly used to distribute funds via financial planners and other intermediaries, will carry a level-load fee of 1%.
Officials also hope the merger will make it possible for Janus to deliver a broader range of funds among institutional investors and within international markets. Janus currently has offices in Tokyo, Milan and Hong Kong.
The merger comes after a difficult year for Stilwell, which has watched its assets dwindle from $175 billion as of Aug. 31 last year to roughly $150 billion as of the same date this year. In addition, Janus executives are frustrated with their funds' lackluster performance. The $1.06 billion Janus Adviser Worldwide fund, for example, has yielded year-to-date returns of minus 20.19%, according to Morningstar, and the $4 million Janus Aspen Strategic Value Institutional fund has lost 16.76% of investors' assets year-to-date.
"We are not pleased with our performance over the past two years," said Jim Goff, Janus' director of research. He said the merger will make it possible for the firm to improve its stock analysis and research. "I'm confident that the steps we are taking to improve our research process will improve our funds' performance in this difficult market," Goff said.
But Rowland said the merger has been "a long-held goal of Stilwell," which has sought to "create a single, diversified platform for distributing investment products globally."
Rowland also said the merger will create changes on the company's board of directors. Janus is searching for three new independent directors. In addition, Helen Young Hayes, Janus' managing director of investments, and Jim Craig, the firm's former chief investment officer, are expected to join the board by Jan. 1.
Whiston will join the board as a vice chairman and director of the Janus board. Rowland will serve as the non-executive chairman until January of 2004. Officials expect that Whiston will become chairman of the board at that time.
Officials, meanwhile, said a transition team of executives from both Janus and Stilwell will help monitor the merger. The team's work will continue throughout 2003.