Fund firm under fire weighs sale

Strong Financial reported to hire Goldman Sachs

December 04, 2003|By BLOOMBERG NEWS

NEW YORK - Strong Financial Corp., whose founder quit Tuesday as chairman and chief executive officer amid a regulatory investigation of alleged improper mutual fund trading, has hired Goldman Sachs Group Inc. to sell the company, people familiar with the situation said.

Richard S. Strong, who founded the firm in 1974, said Tuesday that he would divest himself of voting control of Strong Financial. He owns at least 85 percent of the company, which is based in Menomonee Falls, Wis.

Investment banker Kenneth J. Wessels was named to replace Strong as chairman and chief executive officer.

"I don't think it closes any doors for him, but it may turn out to be his best financial move if he can find a buyer," said Don Phillips, managing director of fund-rating firm Morningstar Inc.

Strong Financial, which oversees about $43.3 billion in assets, would fetch up to $1 billion if it's sold to another mutual fund company, or less if sold to a buyer outside the industry, said a banker who didn't land the assignment and declined to be named.

That price equals 2.3 percent of assets, less than the 4.5 percent that Lehman Brothers Holdings Inc. paid for Neuberger Berman Inc. earlier this year. Lehman paid $3.2 billion in the deal, which was completed Nov. 3.

Strong Financial said it's improving its corporate governance and strengthening its policies, which "present an excellent opportunity for us to simultaneously explore strategic alternatives for maximizing the long-term value of the firm," the company said in an e-mailed statement. "A sale of the company is among the strategic alternatives we are considering."

Strong spokesman Drew Wineland didn't elaborate on the statement. Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment.

Richard Strong repeatedly entertained bids for the company in the late 1990s and told reporters in 1998 that he was discussing the future of his firm with investment bankers. He later told Strong Financial employees that the firm wasn't for sale.

Strong, 61, and Strong Financial are being investigated by New York Attorney General Eliot Spitzer for frequent short-term trading in the company's funds at the expense of long-term investors.

Spitzer's office said Oct. 30 that it might bring criminal charges against Richard Strong for allegedly making about $600,000 in profits for himself and his family from frequent fund trades. It has yet to bring an action.

Though Richard Strong said his trades weren't "disruptive" to any funds, he said he would compensate the funds for any losses his trades may have caused.

Strong Financial was one of the first fund companies accused of impropriety. When Spitzer made his investigation public Sept. 3, he said Strong and three other firms had trading agreements with hedge fund Canary Capital Partners LLC.

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