“Bank of America continuing to tighten its belt. Selling off the long-term asset management business of its Colombia Management unit to Ameriprise Financial for a price tag of $1.2 billion dollars. The deal is expected to close in the spring and will make Ameriprise the 8th largest mutual fund manager, Ameriprise is actually rising to the upside.”– FBN’s The Opening Bell 9/30/2009
Ameriprise Financial (AMP), the Minneapolis, MN financial planning, services and products firm, has agreed to buy Columbia Management from Bank of America (BAC). The market is reacting quite favorably to the deal as AMP stock is nearly 14% higher in afternoon trading. Columbia Management has about $165 billion in assets under management as of the end of the second quarter and will be give Ameriprise an much bigger piece of the mutual fund management business.
Bank of America has made it no secret that they were looking to unload non-core business units ever since regulators urged BofA to raise its capital cushion for potential losses back in May. Columbia Management, with its $165 billion in mutual funds and individually managed accounts, was one asset that was sure to attract some attention. Honestly, if anything we are a bit surprised that this asset did not attract a higher bid. In comparison, Ameriprise bought J&W Seligman & Co. last year which only had $18 billion in assets for $440 million. The current deal seems to offer a lot more bang for their buck.
Either way, at this point both sides are pleased with what they are getting from the deal. Bank of America was able to bolster their cash reserves by getting rid of an asset that is not in a business they are pursuing right now. For Ameriprise, it will overnight transform them into an much bigger presence in long term asset management business for a reasonable price. A remarkably quick ascension to the top ten fund families since being spun out of American Express (AXP) in 2005. Also to Ameriprise’s benefit, there is a 5- year distribution deal in place that will help them sell their financial products through the world’s largest brokerage house Bank of America/Merrill Lynch.
The deal for Columbia Management does increase the attractiveness of Ameriprise stock, but it is unlikely we will upgrade AMP after the share gains today. They have now tripled since hitting multiyear lows in March. As of last week’s report we reaffirmed our Fairly Valued stance on Ameriprise. That being said, this acquisition is a major step forward for Ameriprise allowing substantial cost savings and reports are that is will be accretive to earnings within the first year. Of course, the deal still needs to receive regulatory and shareholder approval.
