HIRES BANKER, MAY SHOP EXOTIC VENTURES: STOCK STUCK, PIONEER CIRCLES THE WAGONS

Pioneer Group Inc. appears to be getting the message at last.

After watching its stock languish in the midst of a bull market, the Boston-based asset management company is slowly taking steps to shed some of its unprofitable — and unconventional — businesses. The company recently hired an investment banking firm to help find a partner for its Siberian timber operations, and it is looking for a buyer for its scandal-tainted Russian bank. Some shareholders say Pioneer executives also may be considering plans to dispose of the company’s gold mine in Ghana — and possibly even its core mutual fund business.

“The company has always been unwilling to sell the fund business in the past, but they are more open to suggestions now,” says Robert Mohn, a money manager at Chicago’s Wanger Asset Management, which as of March held nearly 3% of Pioneer’s stock.

Pioneer, the nation’s 27th largest mutual fund company, won’t comment on speculation about its fund business.

“We’re going to proceed forward with due speed,” says chief financial officer William Keough. “But at the same time we are going to look at the strategic fits of these operations and whether or not they fit into our long-term strategic objectives.”

The case for selling or spinning off its core fund business is compelling. As a stand-alone entity, Pioneer’s mutual fund operation would trade at about $30 a share — significantly higher than the stock’s current price of around $25, according to Mr. Mohn.

There’s also the matter of John F. Cogan Jr., Pioneer’s 72-year-old chairman and chief executive. While Mr. Cogan shows no interest in cashing out and retiring, his 14% stake in the company would be worth a mighty-tempting $144 million if the company were sold at its analyst-estimated value of $1 billion.

Mr. Keough, the CFO, says he’ll retire next spring at the age of 62.

The U.S. mutual fund business is the crown jewel in Pioneer’s eclectic collection of assets. The division had sales of $500 million during the second quarter ended June 30, a 70% increase from a year earlier. The rise was more than offset by losses in the company’s troubled emerging-market ventures, however.

Overall, Pioneer reported a loss of $12.1 million in the second quarter, or 48 cents a share, on revenue of $82.4 million. That compared with a profit of $5 million, or 19 cents a share, on revenue of $80 million a year earlier. The second-quarter loss was so severe Pioneer canceled payment of its quarterly dividend for the first time since going public in 1979.

Wall Street didn’t take it well. Neal Epstein, an analyst in New York with Putnam Lovell de Guardiola & Thornton, downgraded the stock to “hold” from “buy.” Pioneer’s stock plunged a whopping 10% immediately following the earnings release.

Included in the $12.1 million loss was $5.9 million that Pioneer’s bank in Moscow suffered due to what the company describes as a spate of “unauthorized financial transactions.” Pioneer declines to elaborate on the nature of the transactions, but industry sources say they involved the funneling of deposits through phony firms that invested in public companies in Russia.

scandal scuttled sale

News of the scandal, discovered in May, quashed Pioneer’s little-known plans to sell a 35% stake in the bank to an Estonian financial institution, Forekspank. Pioneer has shuttered the Russian bank and is on the prowl for another buyer, Mr. Keough says.

Also included in Pioneer’s loss was a $5.7 million hit on its Teberebie Goldfields mine in Ghana and other mining activities, mainly because of declining gold prices and a drought that caused power shortages. With bullion prices at their lowest level in 20 years and the gold mining operation in the red, Pioneer is widely rumored to be again considering a plan to sell part of its stake. In 1995, Pioneer attempted to raise about $150 million by selling a 19.75% stake in the gold mine, then the most profitable part of its business. It quickly nixed the planned public offering because of “adverse conditions.”

Mr. Keough insists the firm is not shopping the gold mine — at this exact moment. “All we’ve said is that at some point we would attempt (a public offering) again,” he says.

Mario Gabelli, the renowned value investor who picked up a 6.02% stake in Pioneer this summer, says a sale would be a mistake. “I like the gold business,” he says. “I would encourage them to keep the gold mine.”

Likewise, it would be a mistake for Pioneer to spin off its mutual fund business, says Mr. Gabelli, who heads Gabelli Asset Management in Rye, N.Y. Citing Northwestern Mutual Life Insurance Co. Inc.’s announcement last week that it will pay an estimated $1 billion for Frank Russell Co., Mr. Gabelli says, “There are people who believe in the long-term virtue of these (mutual fund) assets.”

Whatever Pioneer decides to do, it better act fast. While the stock prices of other public investment companies climbed an average of 10.2% over the 12 months ended Aug. 6, Pioneer’s have slumped 4.4%, according to Lipper Analytical Services Inc. in New York. The stock price has slumped about 12.5% since the beginning of the year.

bottom feeders swarming

“We believe the stock is undervalued,” Mr. Keough says.

Not surprisingly, the stock has attracted the attention of several well-known bottom feeders, in addition to Mr. Gabelli. Southeastern Asset Management, a money manager that runs $13 billion in assets, owns 19.4% of Pioneer’s stock. The Memphis firm declines to comment on its position in Pioneer.

Pioneer says its recent troubles won’t deter it from attempting to become a big player in the investment management business in Poland, Russia and the Czech Republic. In July, Pioneer teamed up with Banc One Corp. and Overseas Private Investment Corp., a unit of the Commerce Department, to develop real estate in the former Soviet states and Eastern Europe.

But the firm’s main goal is to shore up existing operations. “The company will do what it has to do,” Mr. Keough says. “You have to be very careful when things like this happen, that you don’t have a knee-jerk reaction that in the long-term you are very sorry for.”