Classified in: Business
Subjects: TNM, ERN, CCA

Invesco announces Combination with OppenheimerFunds, $1.2 Billion Common Stock Buyback Program and Reports Results for the Three Months Ended September 30, 2018

ATLANTA, Oct. 18, 2018 /PRNewswire/ -- Invesco Ltd. (NYSE: IVZ) today announced a combination with OppenheimerFunds, a strategic partnership with Massachusetts Mutual Life Insurance Company (MassMutual) and a $1.2 billion common stock buyback program. Invesco also reported financial results for the three months ended September 30, 2018.

"The combination with OppenheimerFunds and the strategic partnership with MassMutual will meaningfully enhance our ability to meet client needs, accelerate growth and strengthen our business over the long term," said Martin L. Flanagan, President and CEO of Invesco.  "This is a compelling, highly strategic and accretive transaction for Invesco that will help us achieve a number of objectives:  enhance our leadership in the US and global markets, deliver the outcomes clients seek, broaden our relevance among top clients, deliver strong financial results and continue attracting the best talent in the industry."

"We have long held OppenheimerFunds' people and strong investment performance track record in high regard," Mr. Flanagan continued.  "OppenheimerFunds' culture and commitment to high-conviction investing complement our own, and the combination will create significant opportunities for the talented professionals of both companies."

"Based on the financial strength of the combined organization, we have initiated a $1.2 billion common stock buyback program that will be completed within the next two years."

Combination with OppenheimerFunds
Invesco and MassMutual announced today that they have entered into a definitive agreement, whereby Invesco will acquire MassMutual's asset management affiliate, OppenheimerFunds, Inc. In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake.

This strategic transaction will bring Invesco's total assets under management (AUM) to more than $1.2 trillion, making it the 13^th largest global investment manager and sixth-largest US retail investment manager, further enhancing the company's ability to meet client needs through its comprehensive range of high-conviction active, passive and alternative capabilities.

The highly complementary investment and distribution capabilities of Invesco and OppenheimerFunds will strengthen the combined organization's ability to provide more relevant investment outcomes to an expanded number of institutional and retail clients in the US and around the globe. Both Invesco's and OppenheimerFunds' clients will benefit from the resulting combination, which will incorporate OppenheimerFunds' high-performing investment capabilities, including a strong international and emerging markets equity franchise, and its powerful US third-party distribution platform, with Invesco's strong and diversified product lineup and global presence, supported by solutions-driven and technology-enabled client outreach.

Under the terms of the agreement, Invesco will acquire OppenheimerFunds with consideration to MassMutual and OppenheimerFunds employees consisting of 81.9 million shares of Invesco common equity and $4 billion in perpetual, non-cumulative preferred shares with a 21-year non-call period and a fixed rate of 5.9%. The 81.9 million shares include approximately 6.6 million shares to be issued as a part of the post-closing conversion of unvested restricted stock awards, currently held by OppenheimerFunds employees, into Invesco restricted stock awards.

Invesco and MassMutual are expected to enter into a shareholder agreement, in which MassMutual would have customary minority shareholder rights, including representation on Invesco's board of directors. MassMutual will nominate William F. Glavin, Jr., current independent board member of OppenheimerFunds and its retired CEO. The shareholder agreement specifies a lock-up period of two years for the common stock.

The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals.

Summary of Invesco Third Quarter Results

 

Assets Under Management

Total assets under management (AUM) at September 30, 2018, were $980.9 billion (June 30, 2018: $963.3 billion), an increase of $17.6 billion during the third quarter. Long-term net outflows were $11.2 billion and total net outflows were $4.9 billion for the third quarter. As of July 1, 2018, we began including 100% of Invesco Great Wall Fund Management Company, which added $9.5 billion in AUM during the third quarter (the acquisition of the Guggenheim Investments' ETF business on April 6, 2018 added $38.1 billion in AUM during the second quarter).

 

Net market gains led to increases of $14.3 billion in AUM during the third quarter, compared to net market gains of $10.3 billion in the second quarter. Reinvested distributions for the third quarter were $1.7 billion compared to $0.7 billion for the second quarter. Foreign exchange rate movements led to a $3.0 billion decrease in AUM during the third quarter, compared to a $13.8 billion decrease in the second quarter. Average AUM during the third quarter were $985.1 billion, compared to $973.9 billion for the second quarter, an increase of 1.2%. Further analysis is included in the supplementary schedules to this release.

Operating Results

This section discusses the company's third quarter 2018 results, as compared to the second quarter 2018, and comments on significant items that have impacted the company's results as presented in accordance with U.S. GAAP.  The results of the acquired Guggenheim Investments' ETF and Intelliflo businesses are included from their respective acquisition dates of April 6 and June 4, 2018.

Operating revenues decreased by $18.8 million (1.4%) to $1,341.8 million in the third quarter, from $1,360.6 million in the second quarter. Movements in foreign exchange rates decreased third quarter operating revenues by $13.6 million compared to the second quarter.

Investment management fees decreased by $11.6 million (1.1%) to $1,038.9 million in the third quarter from $1,050.5 million in the second quarter. Increases related to one additional day during the third quarter and higher average AUM were offset by decreases from foreign exchange rate movements and due to changes in the overall mix of AUM. Movements in foreign exchange rates decreased third quarter investment management fees by $13.1 million compared to the second quarter.

Service and distribution fees increased by $5.1 million (2.1%) to $248.0 million in the third quarter from $242.9 million in the second quarter, reflecting an increase related to a full quarter of Intelliflo revenues in the third quarter.

Performance fees decreased by $3.7 million compared to the second quarter. Performance fees recorded in the third quarter were primarily generated by our real estate and private equity teams.

Other revenues decreased by $8.6 million (15.5%) to $47.0 million in the third quarter from $55.6 million in the second quarter, primarily due to decreased real estate transaction fees.

Operating expenses decreased by $9.6 million (0.9%) to $1,019.7 million in the third quarter from $1,029.3 million in the second quarter. Business optimization charges were $14.5 million in the third quarter, compared to $6.0 million in the second quarter. Total costs of these initiatives at completion are estimated to be up to $160 million, of which approximately $9 million remains to be incurred through 2018. As of the end of the third quarter, these initiatives have produced annualized run-rate expense savings of $54 million, and by completion in 2018, the annualized run-rate savings is expected to be up to $62 million. Movements in foreign exchange rates decreased third quarter operating expenses by $9.2 million when compared to the second quarter.

Third-party distribution, service and advisory expenses decreased by $0.9 million (0.2%) to $408.0 million in the third quarter from $408.9 million in the second quarter. Movements in foreign exchange rates decreased third quarter third-party distribution, service and advisory expenses by $1.2 million when compared to the second quarter.

Employee compensation expenses increased by $4.4 million (1.2%) to $385.5 million in the third quarter from $381.1 million in the second quarter. The increase in the third quarter reflects higher staff severance and relocation costs related to business optimization, increased employee benefits costs as well as a full quarter of compensation costs from Intelliflo. Movements in foreign exchange rates decreased third quarter employee compensation expenses by $5.0 million when compared to the second quarter.

Marketing expenses increased by $1.2 million (3.7%) to $34.0 million in the third quarter from $32.8 million in the second quarter.

Property, office and technology expenses increased $3.1 million (3.0%) to $104.8 million compared to $101.7 million in the second quarter, reflecting increased software maintenance and outsourcing costs, which include a full quarter of Intelliflo.

General and administrative expenses decreased by $17.4 million (16.6%) to $87.4 million in the third quarter from $104.8 million in the second quarter due to the inclusion of a $26.7 million credit for increased recoverable VAT from applying additional regulatory guidance. The credit represents a cumulative adjustment for 2014 through the second quarter of 2018. This credit was partially offset by an increase of $7.0 million in amortization expense related to recent acquisitions as well as an increase in business optimization expenses of $4.8 million from the redomicile of several European funds to Luxembourg. Movements in foreign exchange rates decreased third quarter general and administrative expenses by $1.2 million when compared to the second quarter.

Equity in earnings of unconsolidated affiliates increased $4.5 million to $11.8 million (61.6%) in the third quarter from $7.3 million in the second quarter primarily from increases in earnings from our real estate and private equity investments. Non-operating other income and expenses in the third quarter also included a $28.1 million net gain comprised of market-driven gains and losses of investments held by consolidated investment products (CIP) and net interest income of CIP (second quarter: $0.9 million gain).

Other gains and losses was a net gain in the third quarter of $5.9 million compared to a gain of $1.4 million in the second quarter.

The effective tax rate decreased to 17.8% for the third quarter, from 23.0% for the second quarter. The third quarter included a net 3.8% rate decrease primarily resulting from the acceleration of software tax amortization.

The impact of the inclusion of non-controlling interests in CIP decreased our effective tax rate by 0.7% for the third quarter, compared to an increase of 0.4% for the second quarter.

Capital Management

As of September 30, 2018, the company's cash and cash equivalents were $1,631.5 million, with long-term debt of $2,814.6 million. The credit facility balance was $737.2 million at September 30, 2018 ($878.9 million at June 30, 2018). In October 2018, the company paid $436 million towards the outstanding balance on the credit facility, using cash received from the European sub-group.

The company is announcing a common stock buyback program of $1.2 billion to be completed within the next two years, which will be financed through the strong operating cash flows of the combined organization.

Dividends paid in the third quarter were $124.3 million. Today, the company is announcing a third quarter cash dividend of 30.0 cents. The dividend is payable on December 3, 2018, to shareholders of record at the close of business on November 13, 2018, with an ex-dividend date of November 9, 2018.

Headcount

As of September 30, 2018, the company had 7,410 employees, compared to 7,315 employees as of June 30, 2018.

Invesco is an independent investment management firm dedicated to delivering an investment experience that helps people get more out of life. NYSE: IVZ; www.invesco.com.

Members of the investment community and general public are invited to listen to the conference call today, October 18, 2018, at 9:00 a.m. ET by dialing one of the following numbers: 1-877-951-7317 for U.S. and Canadian callers or 1-210-795-0461 for international callers, using the Passcode: 1590266.  An audio replay of the conference call will be available until Thursday, November 1, 2018 at 5:00 p.m. ET by calling 1-866-393-0864 for U.S. and Canadian callers or 1-203-369-0431 for international callers. A presentation highlighting the company's performance will be available during a live Webcast and on Invesco's Website at www.invesco.com.

This release, and comments made in the associated conference call today, may include "forward-looking statements." Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, assets under management, geopolitical events and their potential impact on the company, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "forecasts," and future or conditional verbs such as "will," "may," "could," "should," and "would" as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission. You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

 

 

Invesco Ltd.
Non-GAAP Information and Reconciliations

We utilize the following non-GAAP performance measures: net revenues (and by calculation, net revenue yield on AUM), adjusted operating income, adjusted operating margin, adjusted net income attributable to Invesco Ltd., and adjusted diluted EPS. We believe the adjusted measures provide valuable insight into our ongoing operational performance and assist in comparisons to our competitors. These measures also assist management with the establishment of operational budgets and forecasts and assist the Board of Directors and management in determining incentive compensation decisions. The most directly comparable U.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income, operating margin, net income attributable to Invesco Ltd., and diluted EPS.

The following are reconciliations of operating revenues, operating income (and by calculation, operating margin), and net income attributable to Invesco Ltd. (and by calculation, diluted EPS) on a U.S. GAAP basis to a non-GAAP basis of net revenues, adjusted operating income (and by calculation, adjusted operating margin), and adjusted net income attributable to Invesco Ltd. (and by calculation, adjusted diluted EPS). In addition, a reconciliation of adjusted operating expenses is provided below, together with reconciliations of the  U.S. GAAP operating expense lines to provide further analysis of the non-GAAP adjustments. These non-GAAP measures should not be considered as substitutes for any U.S. GAAP measures and may not be comparable to other similarly titled measures of other companies. The tax effect of the reconciling items is based on the tax jurisdiction attributable to the transactions. These measures are described more fully in the company's Forms 10-K and 10-Q. Refer to these public filings for additional information about the company's non-GAAP performance measures.

Reconciliation of Operating revenues to Net revenues:

Reconciliation of Operating income to Adjusted operating income:

Reconciliation of Net income attributable to Invesco Ltd. to Adjusted net income attributable to Invesco Ltd.

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Reconciliation of Operating expenses to Adjusted operating expenses:

 

 

 

 

 

 

 

 

 

 

 

SOURCE Invesco Ltd.

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