Henderson Group And Janus Capital - Two Become One

The last time we talked about Henderson Group Plc (AX:HGG) it was around the time of the Brexit when all stocks with any link to the UK got hammered. Henderson Group was one of those stocks that we liked and thought presented a good buying opportunity considering the sharp decline in share price. Earlier this week, HGG was again in the spotlight as it was announced that Henderson and Janus Capital Group Inc (NYSE:JNS) would merge to form a $6bn company.

Janus Capital is based in the US and has approximately US$195bn in assets under management, compared to HGG with US$125bn. Although Janus is a little bigger by this measure, the agreement is being billed as a merger of equals even though HGG shareholders will end up with 57% of the company, distinct from a takeover where one company buys another company (although the reality is no different as Janus shareholders will be paid in HGG stock). The merged entity will be a top 50 global asset manager. Aside from just its size, Janus Capital is best-known as having Bill Gross as the manager of its Bond Fund. Bill Gross is arguably the most well-known bond investor and prior to working at Janus, he managed the world’s largest bond fund at Pacific Investment Management (PIMCO).

The deal makes sense from a geographic diversification point of view. HGG has a large part of its portfolio in European equities while Janus is much more focused on the US. The combined company, therefore, will have a spread of assets covering the largest markets in the world. The timing of the deal shouldn’t be interpreted as having something to do with the Brexit as the CEO of HGG stated that the deal pre-dates the Brexit vote and that the Brexit doesn’t change the underlying fundamental reasons for the merger. If anything, this is more a response to the trend away from active funds management and achieving scale will be vital if this trend continues. In terms of synergies, the companies hope to eventually achieve cost savings of US$110m off the combined cost base (which would be a scary prospect for employees) as well as revenue increases as a result of cross selling products between the various markets in which the combined company will invest.

The market reaction to the announcement has been very positive, with the HGG share price jumping over 10% immediately after the announcement. These gains have been fading in the couple of days since although the share price is still well above where it was pre-announcement. Although neither company is based in Australia, the combined entity will maintain its ASX listing as well as opening a new listing on the NYSE. The current London listing will be cancelled. While the merger still needs to pass through a few hoops, such as shareholder approval, considering it has the support of both boards, it is more likely than not to succeed. We will be watching with interest the performance of the new company.

This article was written by William O'Loughlin - Local Investment Analyst, Rivkin Securities