Federated Buys Assets Worth $421M, Shares Up - Analyst Blog


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Following the announcement of the deal to acquire fixed-income assets worth $421 million, shares of Federated Investors Inc. ( FII ) rallied higher. The shares gained 2.16% to close at $27.49.

On Friday, Federated and Huntington Asset Advisors, Inc., an investment adviser subsidiary of The Huntington National Bank entered into a deal under which, Federated will acquire fixed-income assets worth $421 million. Increased assets under management furnish Federated with various new fund offerings that would benefit its clients.

Notably, Huntington Bancshares, Inc. ( HBAN ) is the bank holding company of The Huntington National Bank. The acquisition, which is expected to be completed in the second quarter of 2014, is anticipated to be tax free. Moreover, closing of the transaction awaits shareholders' approval and certain other factors.

The money market fund managers are under pressure due to the lingering low interest rate environment and the increasing number of regulations. Therefore, Federated came up with the plan of buying more mutual fund assets to enhance its business in strategically important segments.

Terms of the Deal

Under the agreement, Federated, one of the largest investment managers, will acquire fixed-income assets worth $421 million from five Huntington fixed-income mutual funds. These assets will be merged into five existing Federated fixed-income mutual funds, which have the same investment objectives.

For quite sometime, Federated has been working with different banks to offer investment products catering to the needs of the clients. Therefore, Federated's experience, coupled with its proficiency in providing customer service, will be opportunistic for Huntington's shareholders.

Moreover, the completion of the deal will enable the shareholders to access a wider array of investment products. Federated is looking forward to many such opportunities in order to provide cream services to its clients.

Similar Acquisitions in the Past

Since the beginning of 2012, Federated has completed certain similar deals. Earlier in Sep 2012, Federated and Trustmark Corp. ( TRMK ) closed a deal under which, Federated acquired assets worth $929 million from Performance Funds Trust, a wing of Trustmark. Previously, in the same month, Federated acquired money market assets worth $4.4 billion from four Fifth Third money market funds of Fifth Third Asset Management Inc. (FTAM), the asset management subsidiary of Fifth Third Bancorp ( FITB ).

In Apr 2012, Federated completed the expansion of its operations in United Kingdom by acquiring London-based Prime Rate Capital Management, LLP from Matrix Group Limited. The firm provides institutional liquidity and fixed-income products.

Our Viewpoint

Federated has the potential to grow in the long run on the back of its diversified asset and product mix, global expansion and a fairly healthy balance sheet. Going forward, management expects to maintain this balanced growth structure.

Moreover, investors' increased demand for the company's wide range of income-oriented products will help it increase profitability. However, certain factors like regulatory backdrop, volatile equity markets and sluggish global economic growth are likely to keep earnings under pressure.

Federated currently carries a Zacks Rank #3 (Hold).

FEDERATED INVST (FII): Free Stock Analysis Report

FIFTH THIRD BK (FITB): Free Stock Analysis Report

HUNTINGTON BANC (HBAN): Free Stock Analysis Report

TRUSTMARK CP (TRMK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: FII , FITB , HBAN , TRMK

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