New York-based Marsh & McLennan has agreed to sell its beleaguered Putnam Investments business to Power Corp., a Canadian financial services firm based in Montreal , according to the Wall Street Journal.

The $3.9 billion deal is subject to shareholder and employee approval, as well as that of the board of directors.  Power Corp. is not expected to make dramatic changes to the company, but the deal is contingent on there being no significant swings in Putnam’s performance. Putnam’s President and Chief Executive Charles “Ed” Haldeman Jr., who took the helm after scandals rocked the Boston-based fund company, is expected to keep his post.

Power Corp. beat out bidders including United Kingdom-based Amvescap and Unicredito Italiano SpA, and Italian company.

Officials at Power Corp. were not available, while representatives at Marsh & McLennan refused comment.

“Marsh is getting a fair-market value for Putnam,” Chicago-based Morningstar Analyst Justin Fuller told MarketWatch. “It’s not a great deal or a rich price for such a large asset-management business.” Analysts had speculated the company would fetch between $3 billion and $6 billion when Marsh first announced plans to auction the entity.

Its brand tarnished, despite efforts to rebuild, Putnam’s main value is its $191 billion in assets under management.

Jeff Keil, a Denver, Colo.-based mutual-fund consultant, told MarketWatch he commends the changes to fund management, and attention regulators’ concerns about the firm, which was at the center of the mutual fund scandals of the early part of the decade, that Marsh has exhibited in efforts to stave Putnam’s outflows.

Keil said these changes have poised Putnam for profitability in the future. Marsh President and CEO Michael Cherkasky has been credited with boosting shares by 10% through cutting about 10% of the workforce, or 5,750 positions,  and focusing on other, more profitable operations within the company.

By selling the company, rather than spinning it off, Marsh will incur significant capital gains charges; however, the sale allows Marsh to work toward its previously stated goal of focusing on its core operations of insurance and brokerage services.  Analysts estimate that the Putnam division drove about $800 million in profit annually to its parent company. Still, Marsh is also recovering from steep fines and other expenses resulting from civil charges brought by then- New York State Attorney General Eliot Spitzer.  Marsh started 2006 down 30% from two years prior, but is showing significant gains in the most recent quarter.

Buying Putnam wins Power Corp. a large slice of state-side business. Power Corp.’s majority interest in IGM Financial makes it the largest mutual fund operator in Canada

The 75-year old IGM partnered with MacKenzie Financial in April of 2001, according to the Wall Street Journal. 

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.