Great-West Lifeco Says Goodbye (Sort of) to Putnam Investments

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Great-West Lifeco (CA:GWO), the insurance subsidiary of Montreal-based Power Corporation of Canada (CA:POW), announced on May 31 that it was selling its Putnam Investments subsidiary in the U.S., to Franklin Resources (US:BEN), the parent of Franklin Templeton, for as much as $1.3 billion. (All figures in U.S. dollars unless otherwise noted.)

The Winnipeg-based insurance company has moved further into the U.S. retirement and personal wealth planning business in recent years through its Empower Retirement subsidiary. The sale of Putnam enables Great-West to extract value from its investment in the global money management firm while more closely focusing on its U.S. retirement and wealth planning business.

Great-West acquired Putnam in 2007 for $3.9 billion. The acquisition price included buying a 25% interest in T.H. Lee Partners, a Boston-based private equity business founded by the late Thomas H. Lee in 1974.

At the time of Great-West’s acquisition of Putnam, the firm had $192 billion in assets under management (AUM). Today, its AUM is down to $136 billion.

Most to Gain

Down more than 11% in the last 12 months, BEN stock investors look like they have the most to gain. On Fintel’s Value quant dashboard, it scores 86.23, ranking at 3,160 out of 22,824 stocks analyzed. Fund Sentiment is less supportive, with a score of 63.83.

POW stock, down 3.1% in the same period, garners a lower Value score, of 76.83, though attracting higher Fund Sentiment, with a score of 73.4. Recall that the sentiment score, or Ownership Accumulation score, is Fintel’s proprietary quantitative model that ranks companies based on levels of ownership accumulation. To calculate the ranking, we look at two key factors: the change in the number of disclosed owners over the prior quarter, and the change in portfolio allocation of existing owners over the prior quarter.

Great-West Generates More Than $1 Billion From Sale

The transaction terms include $825 million upfront, paid for with 33.33 million shares of BEN stock. Six months after closing, Great-West will receive an additional $100 million cash and potentially $375 million more within three-to-seven years based on Franklin meeting specific revenue growth targets.

As a result of the stock consideration in the sale, Great-West will become Franklin’s fourth-largest shareholder with a 6.2% long-term strategic ownership stake. Approximately 79% of the 33.33 million shares it will receive in the sale can’t be sold for five years from closing. The remaining 7.1 million shares can’t be sold for six months from close.

“Power and Great-West are global leaders across financial services, particularly in the wealth, insurance and retirement channels.” Franklin Templeton CEO Jenny Johnson stated in the announcement.

“With outstanding investment performance, Putnam will add complementary capabilities to our existing specialist investment managers to meet the varied needs of our clients and will increase Franklin Templeton’s defined contribution AUM.”

The Power Group of Companies includes Great-West Life, Canada Life, Irish Life, and IGM Financial’s (CA:IGM) subsidiaries Mackenzie Financial and IG Wealth Management, with additional investments in Rockefeller Capital Management and China Asset Management. The companies have a total AUM and assets under administration of $2.1 trillion.

Bloomberg reported that “For Montreal-based Power, a sale would close the book on a long-term investment that didn’t work out.” It added that the deal offers the billionaire Desmarais family “a way out of a troubled investment.”

Great-West Isn’t Completely Saying Goodbye

As part of Great-West’s strategic partnership with Franklin, it will provide $25 billion in capital to Franklin Templeton’s specialist investment managers within 12 months of closing. It will add to this amount over the next several years.

“This transaction furthers Great-West’s strategy of building strategic partnerships with best-in-class asset managers to support our client’s retirement, insurance, and wealth management needs,” said Paul Mahon, president and CEO of Great-West. “Franklin Templeton’s scale and breadth, together with Putnam’s capabilities, will drive positive outcomes for our companies, our clients, and our investors.”

In addition, Great-West, Power Corp., and Franklin Templeton, as part of this strategic partnership, will distribute Franklin Templeton products to their respective client bases.

Great-West’s 94.3% interest in PanAgora Asset Management is not included in the sale. Putnam acquired 50% of the quantitative asset management firm in 1997. In 2004, it added 30%, and the rest in the years since.

The transaction’s expected to close in the fourth quarter. Great-West stock failed to move on the news.

This article originally appeared on Fintel

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