Through the decades, a few money management mergers have triumphed, but many more have fizzled. Observers praise BlackRock Inc.'s 2006 acquisition of a majority stake in Merrill Lynch Asset Management as a deal well done by the industry's new major domo, BlackRock CEO Larry Fink.
But Merrill's own track record includes some of the sector's most ill-timed, ill-fated acquisitions.
In 1996, Merrill acquired Los Angeles-based Hotchkis and Wiley Capital Management. At the time, Merrill was an overwhelmingly retail operation and Hotchkis and Wiley, a well-respected institutional asset manager, was seen as Mother Merrill's entry into the world of pension funds and university endowments.
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A year later Merrill shifted gears when it paid $5.3 billion, a
staggering 25 times earnings, for London-based Mercury Asset
Management. Now Mercury, a major player in U.K. pension fund
management, would be the firm's flagship name among institutional
investors. The deal was a windfall for Mercury's principals, many of
whom cashed out and walked out. Portfolio performance deteriorated,
assets fell, and in 1998 consumer foods giant Unilever, which
had $1.4 billion in retirement plan assets invested with Merrill, sued
the money manager for improper risk controls and inadequate
performance. It was disastrous PR for Merrill, which two years later
settled the lawsuit for an undisclosed sum.
Back in California, Hotchkis and Wiley, a value manager, was
struggling with a horrendous environment for value investing as growth
stocks drove the S&P 500 up more than 28% a year between the start
of 1995 and the end of 1999.
What did Merrill do?
It sold Hotchkis and Wiley back to its principals in 2000 -- just in
time for the 2000-2002 bear market, when value investing roared back
into favor.
