Mumbai: US money manager T Rowe Price is set to buy a 26% stake in UTI Asset Management Co. Ltd (UTI AMC) for about Rs650 crore, valuing the asset manager at Rs2,500 crore.
“The negotiations are over and the legal teams of both the parties are giving the final touches (to the deal),” said a person close to the transaction who didn’t want to be named. “It can be signed in next fortnight even though it will take two months for all the regulatory clearances to come in.”
The deal values UTI AMC at about at 3.4% of its average assets under management of Rs73,926 crore in August.
UTI AMC is the fourth largest asset manager in the Rs7.5 trillion Indian asset management industry. Reliance Capital Asset Management, HDFC Asset Management Co. Ltd and ICICI Prudential Asset Management Co. Ltd manage more assets than UTI AMC. State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corp. of India, all state-run, own 25% each of UTI AMC.
Business news channel CNBC-TV18 on Thursday quoted State Bank chairman O.P. Bhatt as saying that all four shareholders had given their consent for the deal.
The valuation of UTI AMC is lower than two deals struck when the Indian stock market was riding high. Infrastructure Development Finance Co. Ltd had paid 5.67% of Standard Chartered AMC’s assets in March 2008 to acquire the latter, and Eton Park had paid even more, 12.9% of assets, for a 5% stake in Reliance Capital Asset Management in December 2007.
After the market crash of 2008, valuations have plunged. In July, Nomura Asset Management Co. picked up a 35% stake in LIC Asset Management Co Ltd. at 2.4% of its total assets. In September, the financial services unit of engineering firm Larsen and Toubro Ltd announced plans to buy DBS Cholamandalam Asset Management Ltd for Rs 45 crore, valuing the firm at about 1.6% of its assets under management.
A recent Securities and Exchange Board of India regulation to ban upfront commissions for mutual funds may also affect the profitability and valuations of asset managers.
A recent study by consultancy firm Mckinsey and Co. said AMCs will see profit erosion in fiscal 2010 and 2011. “The industry is likely to witness consolidation as smaller AMCs may not be able to accommodate the acute profit and loss stress,” it said.
Narayanan Somasundaram and Nishant Kumar of Reuters contributed to this story.