State Street said it would acquire Investors Financial Services
for $4.5 billion in stock, the latest takeover in the mutual and hedge fund servicing industry.
State Street, the world's third-largest custodian of investor assets, will move into the No. 2 spot with $14 trillion in assets under custody in the deal with its smaller Boston-based neighbor. The company will still trail chief competitors Mellon Financial and Bank of New York, which announced a tie-up late last year.
The purchase values Investors Financial at $65.01 a share -- a 38% premium to its closing price on Friday -- and marks State Street's second acquisition this year, signaling that the institutional investment manager is acting quickly to reposition itself as the industry consolidates around it.
Eventually, the deal will allow State Street to service about one-third of the $10.4 trillion mutual fund market and one-quarter of the $1.3 trillion hedge fund industry. But it will take about two years for the full benefits to be felt, and State Street paid a steep price, analysts said.
State Street's share price, which had climbed nearly 20% in the last 12 months, fell over 6% on the day. Other trust and custody banks, including Mellon, Bank of New York, and Northern Trust were higher.