Nuveen agrees to $5.75 billion buyout

NEW YORK/BOSTON (Reuters) - Nuveen Investments Inc. JNC.N, the biggest manager of closed-end mutual funds, agreed on Wednesday to be acquired for $5.75 billion by investors led by private equity firm Madison Dearborn Partners LLC in the largest buyout of an asset manager.

The investors offered $65 per share for Nuveen, 20 percent above the company's Tuesday closing price. They also agreed to assume $550 million of debt.

Nuveen, whose clients also include institutions and wealthy investors, becomes the latest financial services company to agree to a buyout in 2007, after four years of rising stocks helped boost management fees. The company's $53 billion of closed-end fund assets, which trade over exchanges, are not subject to withdrawals and thus can generate steady fee income.

"The appeal is that the business doesn't require much capital and generates significant amounts of free cash flow," said Chris Hagedorn, a portfolio manager at Fifth Third Asset Management in Cincinnati, which invests $21.6 billion of assets and owns Nuveen shares.

The purchase price equates to roughly 20.8 times Nuveen's projected 2008 profit, and 3.5 percent of its $166.1 billion of assets under management, levels Hagedorn considers reasonable.

Other financial services providers to agree to private equity buyouts this year have included transaction processor First Data Corp. FDC.N for $26 billion, and student lender Sallie Mae SLM.N for $25 billion. The buyout of Nuveen is the largest of an asset manager, according to Dealogic.

Both Nuveen and Madison Dearborn are based in Chicago. Other investors in the transaction include affiliates of Citigroup Inc. (C.N), Deutsche Bank AG (DBKGn.DE), Merrill Lynch & Co. MER.N, Morgan Stanley (MS.N) and Wachovia Corp. WB.N. Madison Dearborn said it invests more than $14 billion of private equity capital.

The buyout is expected to close by year-end. Nuveen said its board, with the assistance of Goldman Sachs & Co., is entitled to and plans to solicit better offers through July 19.

Nuveen shares rose $9.12, or 16.8 percent, to $63.28 in afternoon trading on the New York Stock Exchange.

OTHER BUYOUTS?

Nuveen Chief Executive Timothy Schwertfeger said the buyout would help his company grow assets faster, add products and distribution, and attract and retain industry talent. Management is expected to retain an equity stake in the company, he said.

Schwertfeger plans to step down as chief executive on July 1 and will be succeeded by John Amboian, Nuveen's 46-year-old president. Schwertfeger, 58, will become nonexecutive chairman.

Some analysts said the buyout may spark private equity bids for medium-sized asset managers that have strong products but lack the ability to grow fast enough on their own.

"Companies like Eaton Vance (EV.N) and Thornburg Investment Management might tempt other private equity players," said Lou Harvey, president of mutual fund research company Dalbar Inc.

The Nuveen purchase, he added, "seems fairly pricey, but it has got to be a bet on growth and not on cost savings."

In the first quarter, Nuveen said profit rose 17 percent to $52.3 million, or 63 cents per share, helped by a 15 percent increase in assets under management to $166.1 billion. Operating revenue rose 23 percent to $196.8 million.

St. Paul Travelers Cos. spun off Nuveen in 2005. The property and casualty insurer has since been renamed Travelers Cos. (TRV.N).

The law firms Cravath, Swaine & Moore LLP and Winston & Strawn LLP advised Nuveen. Goldman and the law firm Katten Muchin Rosenman LLP advised a committee of independent Nuveen directors. Merrill Lynch & Co. and the law firm Kirkland & Ellis LLP advised the buyout group.

(Reporting by Jonathan Stempel in New York and Svea Herbst-Bayliss in Boston)