Wells Fargo to buy Strong Financial

Mutual fund company fetches $500 million, far less than pre-scandal value

May 27, 2004|By Robert Manor | Robert Manor,CHICAGO TRIBUNE

CHICAGO - Wells Fargo & Co. said yesterday that it is buying the assets of Strong Financial Corp., a Wisconsin financial services company that was deeply involved in the nation's mutual fund trading scandal.

The price was not disclosed, but industry analysts estimated that it was about $500 million, a fraction of what it would have cost before Strong's wrongdoing was made public.

Last week, the Securities and Exchange Commission ordered the company's founder, Richard S. Strong, to pay $60 million in penalties for his rapid-fire trading of the mutual funds the company managed, a practice that regulators say can drive up costs and dilute returns of long-term investors.

Strong also was banned for life from the securities industry, and the company was fined $80 million.

The San Francisco banking giant got a bargain because of Strong's actions, analysts said.

"It's very cheap," said Richard X. Bove, managing director of the Hoefer & Arnett brokerage. "Four months ago, we were talking $1.5 billion for the property. Then it came down to $1 billion."

The Strong name, prominent in the mutual fund industry for 30 years, might not survive.

"Wells has an excellent name, an excellent reputation," Bove said. "Strong has a tarnished reputation. Logic tells you what they will do."

With the deal, Wells Fargo gains 420,000 household accounts and $34 billion in assets, $27 billion of that in Strong's 70 mutual funds. Strong's assets have declined about 20 percent since September, when it was identified as one of four companies involved in improper trading.

After the acquisition is completed early next year, the combined company, which will be the nation's fifth-largest bank, expects to manage $217 billion in assets and rank among the 20 largest mutual fund companies.

"The purchase will provide significant benefits for both companies and their clients," said Michael J. Niedermeyer, head of Wells Fargo's investment management business, in a statement.

Wells Fargo officials did not return calls yesterday seeking further comment.

The mutual fund industry has been rocked by accusations of preferential treatment for allowing some hedge funds to frequently buy and sell, something not allowed for other investors. The Securities and Exchange Commission has recently reached settlements totaling $1 billion with Bank of America and Janus Capital Group.

Strong, based in the Milwaukee suburb of Menomonee Falls, is the first fund forced into a merger because of the scandal. Richard Strong owns 85 percent of the firm. His settlement with regulators does not preclude him from reaping millions in profits through the sale.

It was unclear yesterday how many of the company's 1,075 jobs might be lost.

"We want to retain as many of the talented people as possible, but we do expect some duplicate positions will have to be eliminated," said Drew Wineland, a spokesman for Strong, who said Wells Fargo has committed itself to keeping its call-center staff of 175 in Menomonee Falls.

Professionals who lose their jobs won't carry a stigma from their time at Strong, an executive search manager said.

"When you are recruiting at certain professional levels, the hiring employer is sophisticated," said James R. Piper Jr., managing director of Stanton Chase International, a recruiting firm. "I don't believe it will have a major impact, even on fairly senior people."

Piper said the collapse of the Andersen accounting firm is an example. Its accountants found good jobs elsewhere or established firms.

Menomonee Falls, population 32,000, is not financially dependent on Strong. The community is home to the headquarters of retailer Kohl's Corp., a Harley-Davidson Inc. plant and several large office parks. But the company was a generous donor to community causes.

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