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Street Yawns at Stilwell Restructuring


A top shareholder in $3.1 billion market cap Stilwell Financial has hired The Blackstone Group of New York to eyeball Stilwell's proposed restructuring, but it probably will have little impact, said at least one analyst.

And the Street agrees, having barely moved Stilwell's stock. On Dec. 2, when Highfields Capital Management filed its 13D beneficial ownership document with the SEC containing the Blackstone news, the stock dipped seven cents to close at $14.77. Last Tuesday, shares of the Denver-based holding firm opened at $13.10.

In the filing, Highfields, which has a 7% stake, said it hired Blackstone to evaluate the reorganization, in particular, the potential taxable sale of its investment in DST Systems Inc. [see MFMN 10/21/02] and its intention to use the proceeds to pay down debt.

Highfields' Richard Grubman and Jonathan Jacobson, who are managing the investment, did not return repeated calls for comment, but analysts say their intentions are to make a presentation to the board after getting Blackstone's input. Blackstone declined comment.

On Sept. 3, Stilwell said it would abandon its holding company structure and reorganize under its better-known subsidiary Janus International Holding LLC. The outlined reorg included considering alternatives for Stilwell's 33%, or $1.5 billion, stake in $4.6 billion market cap DST, a mutual fund transfer agent.

A Stilwell spokesman said the company intends to go ahead with the restructuring as it was laid out in September and is on track to finalize it by Dec. 31. Shareholders will not vote on the plan.

Berger, meanwhile, another Stilwell company, announced last Thursday its board had approved the merging of 13 of its funds into Janus.

Meanwhile, an equity analyst, who wished to remain anonymous, was perplexed at the amount of attention the situation had received. He predicted Stilwell's board will be open to listening to a critique of its restructuring, but since there is no shareholder vote, Highfields' influence is limited. He also said the situation is not akin to Tyco International Ltd.'s restructuring news last January, when investors traded Tyco's stock down.

Stilwell is not making some "huge blunder," as Tyco did, he said. In fact, Stilwell's shares rose on the restructuring news in September and continue to trade above the pre-announcement levels.

"This is the most overanalyzed, overblown situation I've seen," the analyst said. The alleged contention, however, spawned such headlines as The Boston Globe's "Highfields May Sink Stilwell" and The New York Post's "Janus in Jeopardy."

Another equity analyst, Mark Lane, of Chicago-based William Blair & Co., said he had not examined the ramifications of the filing because he thinks it will not change the restructuring much.

Other shareholders could not be reached, including The TCW Group, a 10.3% holder, and Harris Associates LP, with 4.8%. Davis Funds, which holds 4.5% of Stilwell, declined comment. Highfields itself has been building its stake up recently. As of a month ago, the firm owned 5.9%.

Meanwhile, a spokeswoman at Janus said all alternatives are being examined right now on DST. Observers said options include selling it back to DST, selling it on the open market or retaining it.

In the filing, Highfields says it would like to examine the "consideration of a taxable sale of [Stilwell's] investment in DST Systems Inc., and its intention to use the net proceeds to retire debt." Stilwell has not publicly stated it plans to reduce the debt through selling the DST stake, but many observers have said that is what it would like.

Following the filing, analysts speculated that Highfields may have its eye on Stilwell unloading the stake and distributing the proceeds to shareholders.

Mark Constant, an equity analyst with Lehman Brothers of New York, said that idea borders on preposterous. "You'd be totally screwing the bondholders if you did that," he said. Stilwell had $925 million in debt at the end of July, all except $85 million of which was bond debt. If Stilwell ignored its debt, it would have a tough time ever going back to the capital markets again, he said.

Constant added that Stilwell should keep the DST stake rather than try to pay down debt. None of the bonds are callable until 2006, which means Stilwell would have to pay a premium to retire them, he said.

Standard & Poor's, New York, analyst Jonathan Ukeiley, who rates the bonds BBB+ with a stable outlook, said the firm would be in a much more precarious position if it gave proceeds of the DST stake back to stockholders.