Janus attempts to quell new merger speculation

Nov 14, 2005 @ 12:01 am

By Frederick P. Gabriel Jr.

BOSTON - Persistent rumors that Janus Capital Group Inc. is about to be acquired, or is gearing up to make an acquisition of its own, are false, sources in and out of the company say.

Janus has been the subject of periodic takeover speculation since it fell on hard times a few years ago when its growth style of investing went out of favor and, more recently, when it found itself embroiled in the mutual fund trading scandal.

But Wall Street's storied rumor mill kicked into high gear a few weeks ago when the Denver-based company announced that yet another change of leadership was in its future and that an independent director had resigned suddenly over a spat involving a "strategic option" the firm is pursuing.

But sources at Janus, as well as those close to the company, insist it's all made up.

"There is absolutely nothing going on," said one Janus executive, who spoke on the condition of anonymity. "This company is absolutely intent on remaining independent."

Try telling that to Wall Street.

Janus' stock has climbed more than 28% since the beginning of September, and last Wednesday closed at $18.51 - a peak not surpassed since June 2002.

The Standard & Poor's 500 stock index, meanwhile, has remained relatively unchanged over the same period.

"I don't really know what's happening with the stock," said Franklin Morton, a senior vice president of portfolio management at Ariel Capital Management LLC in Chicago, which is the company's largest outside shareholder. "But, clearly, there's some speculating going on."

It didn't help that The Wall Street Journal published an article about the rumors Nov. 1.

The latest gossip has Janus marrying AMVESCAP PLC, the London-based parent company of AIM Management Group Inc. of Houston and INVESCO Inc. of Atlanta. Janus wants AMVESCAP because it would provide it with the heft it would need to fend off any unwanted suitors, according to the rumors, which so far have appeared mainly in the British press.

AMVESCAP, which has seen the value of its stock jump nearly 12% in recent weeks, is playing down the notion that it is being pursued by Janus.

"This is an unsourced market rumor first reported by one wire service over a week ago and now repeated indiscriminately by others without any further substantiation," said a company spokesman, Doug Kidd, on Thursday.

But Mr. Kidd stopped short of saying the rumor was false.

"We never respond to hypotheticals," said Mr. Kidd when asked directly whether AMVESCAP had received an offer from Janus or was open to receiving one.

Shelly Peterson, a spokeswoman for Janus, also declined to comment on the rumors as a matter of company policy.

Even those that keep close tabs on Janus are inclined to dismiss the concept of a deal with AMVESCAP.

"I think the likelihood of Janus making a major acquisition right now is pretty low," said Mr. Morton, whose company owns more than 15% of Janus' outstanding stock. "My impression of the leadership over there is that they are fully focused on fixing things and improving performance."

To be sure, there are many reasons to disregard the rampant

speculation.

For starters, there are the words of Janus' own executives.

"The company is not for sale," said Janus chairman and chief executive Steve Scheid during a recent conference call with analysts to discuss the company's third-quarter earnings.

On Jan. 3, Mr. Scheid, who has been presiding over Janus for the past 19 months, will hand over the reigns to president and chief investment officer Gary Black.

There also is little in the way of insider-trading activity that would suggest something is in the works. Typically, company executives refrain from buying or selling their own shares when a deal is on the table. That's because they don't want to violate insider-trading laws.

But Landon Rowland, 68, an inside director at Janus, sold more than 430,000 shares of his Janus stock between Oct. 1 and Nov. 7, according to filings with the Securities and Exchange Commission.

On average, Janus insiders trade about 480,000 shares a quarter.

Mr. Rowland's recent stock sales were made for "estate planning" purposes, said Janus' Ms. Peterson.

"The fact that he is selling them now, just before a big move [is supposed to occur], would suggest he's not a very prescient seller," said Mark LoPresti, a senior quantitative analyst at Thomson Financial of New York, a unit of Thomson Corp. of Stamford, Conn.

If all that's not enough, there's also the fact that Janus isn't exactly standing at the bargaining table in a position of strength, hampering its ability to pull off a big acquisition.

During the first nine months of the year, Janus earned $516.6 million in investment management fees, down 7.3% from $557.3 million in the period a year earlier. The decline was driven in part by a 4.3% drop in average assets under management to $132.7 billion, from $138.7 billion, and from a reduction in management fees as mandated under its settlement with regulators.

Janus' stock and bond funds had net inflows of $1.7 billion during the third quarter. Its fast-growing but far less profitable quantitative shop, Enhanced Investment Technologies LLC of Palm Beach Gardens, Fla., had net sales of $5.1 billion during the quarter.

In other words, Janus' retail funds still are losing more assets than they are bringing in.

"I think Janus would have a pretty hard time getting together the financials to make an acquisition right now," said Rachel Barnard, an analyst with Morningstar Inc. in Chicago. "They'd have to do something that would wreck their credit rating, which wouldn't make sense."

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