UAM spiraling toward sale

Top executives at troubled United Asset Management Corp. have donned golden parachutes amid growing signs that the company is caught in a slow death spiral.

“Somebody at UAM is contemplating a change of control. That is a fact,” says Neal Epstein, an analyst in New York for Putnam Lovell de Guardiola & Thornton Inc.

UAM officials declined to comment, citing a policy never to discuss merger rumors, which have been rampant for weeks. But there is mounting evidence that a major move is imminent.

A source close to the troubled Boston firm told InvestmentNews this week that it had hired investment bank Goldman Sachs Group Inc. to assist in evaluating its future. That could include a major restructuring or sale.

UAM declined to confirm or deny the move, but it shocked the money management community last week when it said founder and chief executive Norton H. Reamer, 64, would retire next year and president and heir apparent Charles “Ed” Haldeman Jr., 51, is quitting.

In the wake of the announcement, InvestmentNews also learned that 10 senior executives, including Mr. Reamer and Mr. Haldeman, had signed “change of control agreements” guaranteeing their paychecks and bonuses for a certain period if UAM is sold.

The agreements, signed in July, were disclosed last month in Securities and Exchange Commission filings, but until now had not been publicized.

UAM executives played down the move. “It was simply a routine action that so many companies do to assure that management is there and feels secure,” says Mr. Reamer, who points out that similar agreements involving stock options were signed by executives in 1998.

But industry watchers weren’t buying the company line.”It’s a deeply troubled company,” says Philadelphia mutual fund consultant Burton Greenwald. Reviving UAM will “require radical, rather than cosmetic, surgery,” he says.

“At this point, it seems to make sense to sell the company,” agrees Randy Befumo, an analyst for Legg Mason Fund Adviser Inc. in Baltimore. Its 5.4% holding of UAM stock makes it the fourth-largest institutional shareholder.

“They are in a bind,” Mr. Befumo says. “Their strategy to fix things isn’t working.”

Finding a buyer won’t be easy. The company’s current market capitalization is $1.1 billion — an absolute steal considering it comes with $193.6 billion under management. But UAM is leaking assets at an astonishing pace and is widely perceived as being beyond a quick fix.

Any buyer is likely to come from overseas, experts say, noting that a number of big European financial institutions are eager to break into the U.S. investment management business.

There’s also the chance that UAM could be swallowed by one of the many large insurance companies that have either completed or are planning initial public offerings. Among them are Mutual of New York, John Hancock Mutual Life Insurance Co. and Prudential Insurance Co. of America.

Then, there’s the possibility that UAM — operating on the theory that the sum of its parts is worth more than its whole — will decide to sell its affiliates separately.

Such a scenario, however, seems unlikely in light of the problems it has had trying to unload Pilgrim Baxter & Associates. Nationwide Financial Services Inc. was inches away from buying the Wayne, Pa., money manager for $600 million when the deal fell apart, reportedly because the managements of UAM and Pilgrim Baxter could not agree on how to split the profit.

A sale, complete or partial, is likely to be cheered by shareholders. The stock, at $19.44 late last week, was down about 25% for the year, while the Putnam Lovell Index of Money Management Companies had gained 8.5%.

News of Mr. Haldeman’s departure doesn’t help. He will leave by yearend to become chief executive of Philadelphia-based Delaware Investments, a $46 billion mutual fund arm of Lincoln National Corp.

A Philadelphia native, Mr. Haldeman joined UAM last year after spending 24 years at Cooke & Bieler, a UAM affiliate also based in Philadelphia. Mr. Haldeman was charged with turning the company around.

Mr. Reamer says Mr. Haldeman left not because of any discord but because he wanted to move back to Philadelphia, where his family remained.

The search for Mr. Haldeman’s replacement, which will be both internal and external, is expected to take several months. Once a replacement is found, Mr. Reamer will step down and the new president will also become chief executive.

Easier if job is there

“We should put our best foot forward in the recruiting process,” says Mr. Reamer, who had not publicly discussed plans to retire before last week. “It’s a lot easier to hire someone of CEO caliber if you have the CEO job available right then and there.”

The new CEO will have a tough job. For the first three quarters, earnings were down 26.2% from the same period in 1998 — to $45.7 million, on revenues of $654.3 million (down 9.5%).

Clients yanked about $19.8 billion in assets from UAM in 1998 and $11.5 billion in the first nine months of this year.

The company’s troubles stem, in large part, from the way it is structured. As a publicly traded umbrella company for 49 money management, marketing and distribution entities, UAM owns 100% of its affiliates — a framework that leaves little incentive for the independently run subsidiaries to gather fresh assets. Making matters worse, most of UAM’s money managers are focused on slow-growing pension plans as opposed to the faster-growing 401(k) and mutual fund businesses.

Calls to some of the affiliates, which include Clay Finlay Inc. in New York, Dwight Asset Management Co. in Burlington, Vt., and Cambiar Investors Inc. in Englewood, Colo., did not yield responses.

much done, more to do

This isn’t to say that UAM has been sitting on its hands. It has repurchased 17% of its outstanding stock and, more significantly, is taking a more active role with its top affiliates. It expects to spend $25 million this year on 18 affiliates to improve marketing, client services and technology and to spend more next year.

“We are making some progress,” Mr. Reamer says. “But we still have work to do.”

One thing is for sure: a lot is riding on what happens to UAM.

“They will prevail,” says John A. Benson, president of Denver-based Nelson Benson & Zellmer Inc., which bought itself back from UAM in September after 16 years as an affiliate.

His company manages $220 million for wealthy investors, a niche that’s not UAM’s priority, he says. “The people involved at the affiliate level want to see it work, as well. It’s not as if it is just someone pulling on a string from Boston.”