T. Rowe Price rejects takeover talk, says it's 'thrilled to be independent'

March 20, 1994|By Ian Johnson | Ian Johnson,Sun Staff Writer

C Wall Street's fascination with companies that run mutual funds has spawned one friendly takeover in recent months and, last week, a hostile bid. Some investors have also been $l gambling that one of the industry's best-known names -- Baltimore's T. Rowe Price Associates -- will be one of the next on the block.

The reason is simple: Mutual fund companies are a bit like movie studios. Like entertainment, money management is seen as one of Wall Street's industries of tomorrow. The few that are independent are obvious candidates for a takeover, whether friendly or hostile.

There's just one small problem with that reasoning, say Price's managers: It's dead wrong.

"We are thrilled to be independent and plan to remain independent. We want to control our destiny and our strategy," said George J. Collins, chief executive of T. Rowe Price, in an interview last week.

While that might be nothing more than bravado if it were coming from a CEO in another industry, it may well represent the last word on T. Rowe Price's fate -- at least for the moment. Unlike Paramount Communications Inc., which was recently the target of a successful takeover, mutual funds are tough takeover targets if the management is opposed.

Technically, mutual funds are not controlled by companies such as T. Rowe Price or Franklin Resources Inc. but by outside directors, or trustees, who contract management of the funds to Price or Franklin. If the fund trustees are content with current management, then a hostile bidder would have a hard time winning their approval.

Analysts say Kemper Corp., which is being pursued by General Electric Corp., was an exception. The asset management and insurance company was widely viewed as poorly managed, a sleepy family of funds in a high-octane industry.

For example, Kemper's largest stock fund, the Kemper Growth Fund, had a total return of 1.63 percent in 1993, vs. an average return for growth funds of 10.59 percent, according to Lipper Analytical Services Inc. in Summit, N.J.

That helped spur a $1.6 billion outflow from Kemper funds last year.

Meanwhile, Kemper's suitor GE is more than a deep-pocketed speculator. It is widely respected on Wall Street for managing financial assets, such as its GE Capital Corp., the wing of GE that is offering $2.2 billion for Kemper. At least three Kemper trustees have said that investors in their funds would be better served if GE took over Kemper.

Most other mutual fund companies, however, are not so vulnerable, said James P. Hanbury, an analyst with Wertheim Schroder Inc. Trustees, for example, would be hard-pressed to find fault in T. Rowe Price's handling of its funds, some of which have been top-ranked performers, he said. In addition, current or former Price employees own 30 percent of the company's stock, and that could prove a problem if loyalists wanted to rebuff a hostile bidder.

Still, the prospect of GE snapping up Kemper has caused the investment community's trend hawks to survey other mutual fund companies.

"People are scouring the earth for likely candidates. T. Rowe Price is one of those household names that would be terribly attractive," said Kevin O'Brien, an analyst with Alex. Brown & Sons Inc., with headquarters just a few blocks from Price.

Price, with 57 funds and $54 billion in assets under management, is not only a household name, but its stock may also be cheap compared to Kemper's. According to analysts, GE's $55-a-share bid price for Kemper would be higher if not for Kemper's bad real estate and insurance portfolios. If a similar bid were made for Price, an offering price would certainly be over $40 a share, they say.

Hence, when GE made its bid on Monday, Price's price jumped to $36 a share from $33.25. The stock continued to surge to an all-time high of $38.25 on Thursday before backing off slightly on Friday to close at $37.25 a share. That represents a 12 percent increase last week.

According to Mr. Collins, last week's run-up may also have something to do with the company's strong earnings, which rose 53 percent in the final three months of 1993 and 35 percent for the year to a record $48.5 million on revenues of $206.1 million.

The company's stock volume also is low, Mr. Collins said, meaning that just a few investors can help the company's stock spike upward.

"We like what we do," Mr. Collins said. "And we think we do a good job. We don't want outsiders to dictate to us."

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