By Liz Hoffman, and Leslie Scism
TIAA-CREF plans to buy rival Nuveen Investments for $6.25
billion including debt, a giant deal aimed at catapulting the firm
into the big leagues of money management.
The deal, also the largest in the sector since the financial
crisis, will vault the combined company into the 20 largest U.S.
money managers by assets, much closer to mutual-fund heavyweights
BlackRock Inc., Vanguard Group and Fidelity Investments. The value
of the deal includes debt.
Together, the two firms will have about $800 billion in assets,
executives from both companies said Sunday.
"It's a win for us, it's a win for Nuveen, and it's a win for
clients have trusted us with their money," TIAA-CREF Chief
Executive Roger Ferguson Jr. said in an interview.
Both TIAA-CREF and Nuveen are quiet players in the
asset-management industry, and the deal caught some analysts by
surprise. The deal will transform New York-based TIAA-CREF, known
largely as a provider of retirement-income products, into a firm
with broader asset-management capabilities, including a deeper
institutional client base and municipal bond funds, say analysts
and industry observers.
Perhaps most important for TIAA-CREF, the addition of Nuveen
will allow the firm a greater distribution channel in the U.S. and
abroad, where TIAA-CREF doesn't sell its mutual funds, says Laura
Lutton, an analyst with fund-research firm Morningstar Inc.
Mutual funds rely heavily on third-party distributors to market
their funds to investors. Those relationships are important in
remaining competitive.
TIAA-CREF is a 96-year-old company that specializes in serving
the academic and nonprofit worlds, with many college professors and
administrators putting their savings in its retirement-income
vehicles. The firm, with about $570 billion of assets, also sells
low-cost mutual funds, life insurance and other products to the
public, and has about 4.8 million individual clients.
The two firms will operate independently and will retain both
names, according to TIAA-CREF.
Nuveen, based in Chicago, was founded in 1898 as a bond
underwriter. It focused on investing in municipal bonds, which
still make up a big chunk of its $221 billion of assets under
management, through the 1990s, when it started branching into other
products. It has diversified into stocks, corporate credit and real
estate, and is the largest manager of U.S. closed-end funds, a type
of investment fund that is listed on a stock exchange. Nuveen's
revenue has grown to just over $1 billion last year from about $680
million in 2009, regulatory filings show.
TIAA-CREF has faced increased competition from other
financial-services firms in its core higher-education business. The
firm had been looking to grow its mutual-fund business through an
acquisition and looked at several possible targets, Mr. Ferguson
said.
Nuveen "popped to the top of our list," he said.
But the deal could affect TIAA-CREF's stellar credit rating.
Moody's Investors Service said Monday that would likely downgrade
the firm's triple-A financial-strength rating if the deal is
completed because of the size and scope of the announced
acquisition. Standard & Poor's Ratings Services, however, said
Monday that TIAA-CREF's rating would be unaffected by the deal.
By purchasing Nuveen, TIAA-CREF will become the 15th largest
mutual-fund firm in the U.S., up from a previous rank of 32,
according to Morningstar. Nuveen currently ranks as the 40th
largest mutual-fund firm.
The deal also gives Nuveen's owner, private-equity firm Madison
Dearborn Partners LLC, a clean exit from a seven-year-old
investment.
Chicago-based Madison Dearborn bought Nuveen for about $5.75
billion in 2007, using $2.7 billion of its own money and borrowing
the rest, according to regulatory filings. Within a year, Nuveen's
borrowing costs had risen as the financial crisis set in. The
company eventually refinanced most of its buyout debt. It had
borrowings of about $4.5 billion at year-end, which will be
absorbed by TIAA-CREF.
Private-equity investors often expect double-digit returns. With
the TIAA-CREF deal, Madison Dearborn will at best do little more
than break even on its Nuveen investment.
"This is as close to a perfect match as we could have imagined,"
said John Amboian, Nuveen's chief executive.
Corrections & Amplifications
TIAA-CREF had been looking to grow its mutual-fund business
through an acquisition, the company's Chief Executive Roger
Ferguson Jr. said in an interview Sunday. An earlier version of
this story incorrectly stated that Mr. Ferguson said he was looking
for a splashy way to grow the operation.
Write to Liz Hoffman at liz.hoffman@wsj.com, Kirsten Grind at
kirsten.grind@wsj.com and Leslie Scism at leslie.scism@wsj.com
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