Van Kampen mutuals to join Travelers Inc.'s American Capital

August 25, 1994|By New York Times News Service

The consolidation of the mutual fund business into fewer, but larger, companies moved ahead yesterday with the announcement of plans to merge American Capital Corp., a subsidiary of Travelers Inc., with Van Kampen Merritt Cos., owned by Clayton Dubilier & Rice, an investment partnership.

The new company, to be headed by Richard S. Braddock, former president of Citicorp and now a partner at Clayton Dubilier, hopes to eliminate many of the weaknesses that hindered Van Kampen Merritt and American Capital as separate companies.

Van Kampen, which manages $22 billion of assets, is a specialist in bond investments but lacks equity mutual funds. American Capital, with $16.6 billion of assets, has an established record with equity funds but has suffered from a limited distribution system and slow growth.

Investment bankers said several other sales of mutual fund companies were pending, though they declined to say which ones. Jeffrey D. Lovell, a principal at Putnam Lovell, an investment banking firm, noted that mutual funds produce profits equal to a 25 percent return on capital for their owners and said, "We are in a strong market for sellers" even for companies that have been losing market share, such as American Capital.

Mr. Braddock said that the new company still lacked expertise in international investing, but that after the merger it would be in a much stronger position to sell its funds through banks. "We now have a diversified group of funds with a decent performance record, which is what banks want," he said.

Mr. Braddock said combining the two companies would allow the elimination of "tens of millions" of duplicated expenses and would result in economies of scale.

The new company, to be called Van Kampen/American Capital, will manage about $38.5 billion of assets with 2 million customers and would rank among the country's 20 largest mutual fund companies.

For Travelers, which expects to earn an after-tax profit of $40 million on the $430 million sale of American Capital, the sale eliminates a small part of its business. It owns the mutual fund business of its Smith Barney securities subsidiary, with $57 billion of assets.

Travelers also plans to invest $24 million for a 4.9 percent share in the new company, which it may increase to 10 percent.

Jeffrey B. Lane, a vice chairman of Travelers, said the new company may sell its funds for seven years through two Travelers subsidiaries: the 11,000 brokers of Smith Barney and the more than 20,000 part-time insurance agents of Primerica Financial Services.

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