Invesco to buy unit of M.Stanley

SAN FRANCISCO (Reuters) - Morgan Stanley (MS.N) agreed on Monday to sell its mutual fund business to Invesco Ltd (IVZ.N) for $1.5 billion, as the Wall Street bank restructures its money-losing asset management division.

Under the deal for the retail asset management business, which includes mutual fund subsidiary Van Kampen Investments, Morgan Stanley will get $500 million in cash and a 9.4 percent stake in Invesco, an independent investment management company.

"They are hoping that by selling it to a firm like Invesco, which specializes in those types of businesses, that they will be able to run it more efficiently and get more out of it," said Walter Todd, portfolio manager at Greenwood Capital Management, which owns Morgan Stanley's shares.

"Morgan Stanley can benefit from that potential upside by having a stake in Invesco," Todd said.

Morgan Stanley's asset management business has posted $2.64 billion in operating losses since the start of 2008. The company is expected to report earnings on Wednesday.

In July, Morgan Stanley's Chief Executive John Mack promised his company was "taking steps to deliver better results" in asset management and other crucial businesses.

The deal comes as banks, including Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Barclays Plc (BARC.L) have sold or agreed to sell asset management businesses in recent years, in an effort to raise funds, avoid the appearance of conflict and focus on their main businesses.

Morgan Stanley said the deal would help address some affiliated product sales restrictions faced by Van Kampen portfolio managers since the closing of its Morgan Stanley Smith Barney joint venture with Citigroup.

Morgan Stanley Investment Management (MSIM) will now be comprised of several distinct institutional-focused businesses. The restructured division would have about $267 billion in assets under management on a pro-forma basis as of Sept 30, 2009.

MSIM's long-only institutional business will now be led by an operating committee, chaired by Stu Bohart, co-head of

MSIM.

The deal gives Invesco a business with $119 billion in assets under management across equity, fixed income, alternatives and unit investment trusts, positioning it among the top 10 U.S. fund managers. Invesco had $416.9 billion under management as of September 30.

Invesco said the deal would provide synergies of about $70 million and be accretive in the first 12 months after close. It said it expects integration charges of $100 million to $125 million, largely in 2010.

The transaction has been approved by the boards of both companies and is expected to close in mid-2010.

The deal has elements similar to BlackRock Inc's (BLK.N) 2006 agreement to buy Merrill Lynch's asset management business. Merrill Lynch, now part of Bank of America, received nearly half of BlackRock in that deal.

Morgan Stanley has looked at options for its asset management business in the past. It was in formal talks with Janus Capital Group Inc (JNS.N) in the spring of 2008 about a deal to combine Janus with Van Kampen and potentially other parts of Morgan Stanley's asset management business.

Those talks fell apart because Morgan Stanley wanted a controlling interest in the combined operation.

Morgan Stanley closed up 0.36 percent, or 12 cents, at $33.11 on Monday. It was slightly higher at $33.25 in after hours trading.

Invesco closed up 1.63 percent, or 37 cents, at $23.12. It was unchanged in after hours trading.

(Additional reporting by Dan Wilchins; Editing by Ted Kerr and Carol Bishopric)