What is Janus Capital worth? According to the New York Times, Janus, the nation's hottest seller of mutual funds, will be officially spun off today from its parent, the railway operator Kansas City Southern Industries. For over a year, Janus executives and some of its top fund managers have openly denounced the transaction because the fund company is being packaged with Kansas City Southern's three other, far smaller financial holdings under the name Stilwell Financial. The executives argue that their company would be assessed a greater value in the market if it traded on its own. Recent acquisitions, spurred in part by a growing appetite for globalization, have put lofty prices on some asset managers, far more than that put on the Stilwell offering. "I think investors will continue to push management to unlock the value of Janus," said Henry McVey, an analyst at Morgan Stanley Dean Witter. In the most heated recent deal, Thomas F. Marsico, once the star manager of the Janus Twenty fund, agreed to sell the remaining half of his three-year-old Marsico Capital Management to Bank of America. The deal values Marsico at $1.1 billion. Given that the fund complex manages about $15 billion, most analysts consider it a generous price at 7.3 percent of assets. Using that pricing benchmark, Janus, which manages $309 billion, could be worth more than $20 billion. By comparison, Stilwell, which includes Kansas City Southern's stakes in the asset managers Berger Associates and Nelsons Money Managers as well as the financial services data processing firm DST Systems, had a market capitalization of $9.8 billion as of yesterday's close. The stock has been trading on a when-issued basis, which allows for transactions in anticipation of a security's issuance. Acquisitions, of course, often bring premiums to companies, in anticipation of synergies, and some recent deals have been for less lofty prices than Marsico's. At the low end, United Asset Management has agreed to be acquired by the South African money manager Old Mutual for less than 1 percent of assets. More typical pricing has been 2 to 4 percent of assets, though analysts say cash flow may be a more useful measure than assets under management. Still, should Janus not merit a top-tier valuation? After all, the company, noted for its big bets on technology stocks, has arguably been the mutual fund firm to profit most from the bull market. Its assets have more than quadrupled since the end of 1997, when it ran just $67.3 billion, and its funds continue to outsell those of Fidelity and Vanguard. Most analysts who follow Janus say the company is being held back by its packaging with Stilwell. Salomon Smith Barney even has a 20 percent "holding company discount" on Stilwell as a hedge against the possible departure of any of Janus's star portfolio managers. Salomon estimates that Stilwell is trading at 15 times its earnings, while the average for asset managers is 18. Janus, it says, merits closer to 25. "Janus is worth, at a minimum, double what it's currently valued at," said Steven Eisman of CIBC World Markets. Bruce R. Brewington of Putnam, Lovell Securities said Stilwell's preliminary trading puts it in the low end of asset managers. "I'd argue that they're a premier franchise, so they'd go in excess of the median," Mr. Brewington said. "Janus would be better served as a stand-alone entity." Asset managers are enjoying a surge in popularity after a year of doldrums. The Putnam, Lovell Index of Publicly Traded Money Managers, which tracks 17 asset management firms, gained 30 percent the first half of 2000, compared with a 1 percent drop in the Standard & Poor's 500-stock index. Last year, the index gained 16 percent, four percentage points behind the S.& P. And Stilwell's stock is likely to get at least a small boost as it is added to the S.& P. 500, and asset managers that mimic the index add Stilwell to their portfolios. Mark L. Constant of Lehman Brothers sees less room for improvement than do other stock analysts. "Would things be better if they spun off separately" from Berger and the other units? Mr. Constant asked. "Yes, they would be better valued, but not astronomically." Mr. Constant noted that separating Janus, at this point, could create billions of dollars in tax consequences. And one of Kansas City Southern's main arguments for the Stilwell deal is that it is structured as a tax-free spinoff. "To be awarded the tax-free status, it must be a clear separation of businesses that operate in different industries," said Michael Herley, a spokesman for Kansas City Southern. That made it necessary to group all the financial holdings. Further, Kansas City Southern management says that Janus's full value will be appreciated. "We do not believe the holding company structure will trade at a discount," Mr. Herley said. Janus officials have disagreed with both points, but the crux of the dispute comes down to control. In effect, it is a spinoff in reverse, with the railroad being cast off. Landon Rowland, chairman and chief executive of Kansas City Southern, is vacating that job to become chairman and chief executive of Stilwell. Mr. Rowland will continue to walk a delicate balance with Janus's founder, Thomas Bailey, who sold the majority of his company in 1984. Stilwell will be even more heavily dependent on Janus than was Kansas City Southern. Janus will account for more than 90 percent of the new company's revenue and operating income. Mr. Eisman suggests that Stilwell shareholders, who will get two Stilwell shares for each share of the railroad, could stage a proxy fight to get control of Stilwell. But that would be hard. It is more probable that Stilwell, or Janus, could be a takeover candidate. Or some of Janus's star managers could walk away to start their own firms, as Mr. Marsico did. For the moment, it appears that little will change at Janus. Kansas City Southern, under Mr. Rowland, has left Mr. Bailey to run Janus. A thaw between the two managements may even be in the offing. Janus is now seriously considering Kansas City Southern's invitation to recommend candidates to fill some of Stilwell's board seats. "Now that we're stuck with Stilwell," said Stephen Stieneker, a Janus vice president, "we have to try and make the best of it." (Next Story)

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July 12, 2000
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