Pimco in Merger Talks With Germany’s Allianz

Pimco Advisors Holdings, the Newport Beach-based money manager that operates the world’s largest bond fund, confirmed Tuesday that it is negotiating to be acquired by German insurance giant Allianz for as much as $4.4 billion.

The all-cash transaction would value Pimco at $38 to $39 per unit, or share. That would mean a value of between $4.2 billion and $4.4 billion for all 111.8 million of Pimco’s public and private units, the company said.

Speculation that a deal was imminent caused Pimco shares to rise $2.25 to $32.75 before trading was halted on the New York Stock Exchange.

In a statement, Pimco officials cautioned that key terms have yet to be determined and the negotiations might still fall through.

Company officials said they would have no further comment until a definitive agreement is reached. Pimco employs 1,200 worldwide, including about 590 in Orange County.

Allianz officials declined to comment Tuesday. But officials at the German company said in July that they had talked with Pimco and last month said they were continuing to search for a U.S. partner.

Allianz shares rose $3.58 a share to close at $297.46 Tuesday on the Franfurt Stock Exchange.

A deal between Pimco, which has $250 billion in assets, and Munich-based Allianz, Europe’s second-largest insurer with $360 billion under management, would be the latest merger in a rapidly consolidating industry and one of the biggest takeovers of a U.S. asset manager.

A merger with Allianz would enable Pimco to greatly expand its overseas operations, which has been a long-term goal of Pimco Chief Executive William D. Cvengros. The company, which also offers stock mutual funds, would like to boost its foreign client base from the current 6% to 20%.

“This would help them accelerate their efforts to diversify internationally and gain an international distribution channel,” said Mark Constant, analyst at Lehman Brothers Inc. in San Francisco. “It would also appease their frustrations that their stock, despite strong results, has not done better.”

For Allianz, the deal would provide an important foothold in the U.S. money-management market and an opportunity to strengthen its earnings base, analysts said.

Allianz also has looked at two other U.S. investment companies, Franklin Resources and John Hancock, according to recent reports in German newspapers.

In a further effort to raise its U.S. profile, Allianz is planning to list its shares next year or by 2001 on the New York Stock Exchange, a move that would allow the company to use stock rather than cash to pay for future U.S. acquisitions.

Analysts say a key to the Pimco negotiations will be winning the support of Pimco’s top managers, who own a 22% stake in the firm.

Pimco’s highly-respected bond fund manager William Gross is considered one of the company’s most valuable assets. His Pimco Total Return Bond Fund has been rated No. 1 in its category by Lipper Analytical Services for the last 10 years.

“This is a people business,” Constant said. “It’s not like a factory that you can just shut down and move to Germany to save costs.”

Allianz also will need to convince Newport Beach-based Pacific Life Insurance Co., which owns a 34% stake in Pimco. A spokeswoman for the life insurer declined to comment on the potential sale Tuesday.

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Times staff writer Edmund Sanders can be reached at [email protected].

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Pimco’s Growing Funds

Pimco’s $51-billion mutual fund business, although small compared with its institutional money-management assets, has been growing rapidly. Fastest-growing fund companies from July 1998 to July 1999:

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Fund assets* 1-year Fund company (billions) growth Janus $109 +65% Charles Schwab 19 +64 Legg Mason 17 +60 SEI 18 +54 Alliance 44 +47 MFS 75 +34 Pimco 51 +30 Vanguard 442 +28 Eaton Vance 26 +28 Invesco 23 +22 Industry average +15

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* As of July. Includes long-term funds only.

Source: Financial Research Corp.