Franklin Resources to buy Heine Michael Price is part of $610 million deal

June 26, 1996|By BLOOMBERG BUSINESS NEWS

SAN MATEO, Calif. -- Franklin Resources Inc. said yesterday that it has agreed to pay $610 million for famed stock picker Michael Price's mutual fund company.

Franklin's purchase of Price's Heine Securities Corp., which could reach $800 million if Price meets certain incentive goals, gives the fifth largest mutual fund company a strong presence in U.S. stocks.

Until now, Franklin was known for its international stock and U.S. bond mutual funds.

Price, 44, a value investor well known for buying out-of-favor stocks, will remain for five years after the transaction is completed.

His four Mutual Series funds, with assets of $17 billion, rank in the top 10 percent of all funds tracked by Lipper Analytical Services Inc. during the past 10 years.

Franklin is paying a premium for these stock mutual funds to raise its profile in the fast-growing 401(k) retirement market, where it now has about 11 percent of its $145 billion in assets.

"This gives Franklin an important boost, because they were perceived to be weak in the retirement business," said Burton Greenwald, head of B J Greenwald Associates, a consulting firm based in Philadelphia. About 30 percent of Price's assets come from retirement savings plans.

Price, who is the sole owner of Short Hills, N.J.-based Heine, will get a $550 million payment in cash, and the rest in 1.1 million shares of Franklin Resources common stock, which he must hold for two years.

Price will get an additional $96.25 million to $192.5 million if the firm's advisory fees grow between 12.5 percent and 17.5 percent over five years.

He also agreed to invest $150 million of the cash he gets from Franklin in his mutual funds, and to keep a minimum balance of $100 million in the funds for five years.

With that commitment, Price "has a vested interest that the funds will perform well," said Greg Johnson, head of marketing and sales at Franklin.

The merger allows Heine to improve research, investment management and client services, Price said, while remaining independent.

"Franklin has a deep bench [of analysts and managers] and a huge balance sheet. I've solved a lot of problems I couldn't have by myself," Price said.

Price joined Heine Securities 20 years ago to work under Max Heine. He inherited Heine's job of president after his mentor's death in 1988.

Speculation that Price might want to sell his funds surfaced in January, when his company said it had discussions "from time to time" with groups interested in acquiring all or part of its business.

Franklin Resources beat out rival suitors Pimco Advisors LP, New England Investment Cos. and First Union Corp., which were reluctant to pay Price's high asking price.

Franklin Resources was willing to pay about 3.5 percent of assets under management, at the high end for money management acquisitions, because it needed strong U.S. stock funds to keep growing.

Pub Date: 6/26/96

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