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Janus to Swap DST Systems Shares

The mutual fund company agrees to the tax-free deal valued at up to $1.11 billion as a way to cut its debt load.

August 26, 2003|From Bloomberg News

Janus Capital Group Inc., the once highflying mutual fund company that now is struggling to get back on track, said Monday that it would swap most of its stake in information-processing firm DST Systems Inc. in a deal that could slash Janus' debt load.

Under the complex agreement, which is designed to avoid capital gains taxes, Denver-based Janus would return 32.3 million DST shares to DST and receive part of Output Solutions, a printing and graphics design business.

DST, the largest U.S. firm that records the transfer of securities at fund companies, in turn would give as much as $999 million in cash to Output.

Output then would buy as much as $450 million of Janus' $840 million of outstanding debt, said Girard Miller, the fund company's chief operating officer.

Output also might use as much as $300 million over the next three years to buy back Janus shares, Miller said.

Janus had been seeking a way to sell its 34% stake in Kansas City, Mo.-based DST since last year, when the fund company reorganized.

Investors in Janus, including hedge fund company Highfields Capital Management, had pressed the firm to find a tax-free solution amid falling earnings and declining assets under management.

A tax-free swap would enable Janus to reduce its debt and no longer include a portion of DST's results with its own, Miller said. The business operation plus the cash would be worth between $969 million and $1.11 billion, DST said in a statement.

The shares to be swapped have a current market value of $1.2 billion. Miller said Janus and DST agreed to value the shares at between $30 and $34.50, which he called a "fair valuation range prior to this transaction being discussed."

The stock traded at a low this year of $24.30 on March 11 and a high of $39.84 on July 8. DST closed Monday at $37.47, down 23 cents, on the New York Stock Exchange, before the deal was announced.

Shareholders of DST must approve the transaction, which Janus expects to be completed in the fourth quarter. Janus would retain 7.4 million shares, or 9% of the company.

Janus had been one of the best-known growth stock managers of the late 1990s, but its heavy investment in tech shares caused huge losses for its fund owners when the bull market collapsed.

Under Chief Executive Mark Whiston, the company has introduced new funds and cut expenses as assets under management declined 55% since March 2000, to $150 billion by the end of July.

In the second quarter, Janus' profit fell 36% to $47.5 million from the year-earlier period after revenue dropped for a 10th consecutive quarter.

Highfields, based in Boston, had built up a stake of more than 20 million Janus shares over the last year while it urged the company to cut executives' pay and sell the DST stake without incurring a large tax bill.

Janus' stock has risen 36% this year, but its shares are far below their 2000 peak of about $54. The stock closed at $17.79, down 24 cents, on the NYSE on Monday before the deal was announced.

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