Coverage: Invesco is buying Oppenheimer Funds for $5.7 billion

Invesco Ltd. is paying $5.7 billion in a deal with Massachusetts Mutual Life Insurance Co. to acquire its Oppenheimer Funds, which specializes in picking stocks and bonds especially in the international arena.

Charles Stein, John Gittelsohn and Katherine Chiglinsky of Bloomberg News had the news:

At a time when many investors are deserting active funds for products that track indexes, Invesco Chief Executive Officer Martin Flanagan is convinced that active funds will continue to play a critical role in the portfolios of retail and institutional customers.

“Investors are looking for a broad range of ways to have us meet their outcomes — it is high-conviction active management, it is passive and it is alternatives,” Flanagan said in a telephone interview.

Roger Crandall, CEO of MassMutual, agreed. “We’re convinced the entire world doesn’t go to one giant, cap-weighted index.”

Invesco shares were up 3.8 percent to $21.74 as of 10:51 a.m. in New York.

Reshma Kapadia of Barron’s reported that the deal gives Invesco some heft:

One way for asset managers to protect margins is to gain heft—in terms of pure assets, distribution power, or dominance in certain specialties or where passive strategies can’t work as well. To get that scale, Invesco said it would buy OppenheimerFunds for 81.9 million Invesco shares and $4 billion in preferred shares with a 21-year noncall period and a fixed rate of 5.9%. MassMutual gets a 15.5% stake in the company as a result, becoming Invesco’s largest shareholder. The acquisition, which had been speculated about for weeks, tips the combined company into the handful of asset managers with more than $1 trillion in assets. Invesco will be the sixth-largest U.S. retail fund firm.

The deal marks the latest—and what Flanagan says is the final—installment of a buying spree that has included the purchase of Guggenheim Investments’ exchange-traded fund business last fall, and European ETF specialist Source in early 2017 (Invesco became a major player in the ETF business with its 2006 purchase of PowerShares). Flanagan says he can’t identify any holes left to fill.

The acquisition of OppenheimerFunds, which had $240 billion in assets, expected to close in the second quarter of 2019, should add 18% to earnings per share in 2019 and 27% in 2020, according to the statement. Invesco also simultaneously announced a $1.2 billion stock buyback over the next two years.

Michelle Williams of MassLive.com reported that Mass Mutual is becoming Invesco’s largest shareholder:

“This is a compelling, highly strategic and accretive transaction for Invesco that will help us achieve a number of objectives: enhance our leadership in the US and global markets, deliver the outcomes clients seek, broaden our relevance among top clients, deliver strong financial results and continue attracting the best talent in the industry,” Martin L. Flanagan, president and CEO of Invesco, said.

MassMutual is expected to own an approximate 15.5% stake in the common equity of Invesco, becoming the company’s largest shareholder.

“MassMutual is excited for the next chapter in our successful asset management strategy,” said MassMutual Chairman, President and CEO Roger W. Crandall said. “This strategic combination positions us well to continue to benefit from a strong, diversified global asset management business, which will further strengthen our financial position and support our ability to invest in the long term, provide increased value to our policyowners and customers, and help us deliver on our purpose to help people secure their future and protect the ones they love.”