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Nuveen Investments Agrees to $5.75 Billion Buyout 

Asset manager Nuveen Investments, the industry's biggest manager of closed-end mutual funds, has agreed to a $5.75 billion buyout by an investor group led by private equity firm Madison Dearborn Partners, the companies said on Wednesday.

The terms value Nuveen at $65 per share, 20 percent above the company's Tuesday closing price of $54.16. The transaction also includes $550 million of assumed debt.

Nuveen, which counts institutions and wealthy investors among its clients, becomes the latest financial industry company to agree to a buyout this year, following such companies as student lender Sallie Mae and transaction processor First Data. But it marks the first time a private equity firm has bid for an asset manager during this latest mergers period, bankers and analysts said.

Both Nuveen and Madison Dearborn are based in Chicago. Other investors in the transaction include affiliates of Citigroup, Deutsche Bank, Merrill Lynch, Morgan Stanley and Wachovia, Nuveen said.


"The deal seems fairly pricey, but it has got to be a bet on growth and not on cost savings," said Lou Harvey, president of mutual fund research company Dalbar Inc.

The buyout is expected to close by year-end. The deal includes a provision allowing Nuveen to solicit better offers through July 19. Nuveen said its board, with the assistance of Goldman Sachs & Co., intends to solicit such offers.

Shares of Nuveen rose 17.2 percent to $63.46 minutes after the market opened. The stock, adjusted for a split, has more than doubled in price in the last five years as the company grew with selected acquisitions and assets climbed to $166 billion.

The shares are trading at about 20 times estimated 2007 earnings, above the industry average of 17.7.

While news of the buyout surprised some analysts, they said it may spark a trend where private equity firms bid for smaller to medium-sized asset managers boasting strong products but not large enough to continue on their own.

"Public ownership is not a panacea for asset managers especially as they try to maintain earnings per share at a time much of their business is dictated by market conditions," said Geoff Bobroff, an independent industry consultant.

A "Growth Buyout"

Nuveen President John Amboian said the deal was a "growth buyout" that would not change the company's strategic direction but help accelerate its development.

"We will continue to build out our institutional and mutual fund businesses while growing our leadership positions in structured products and in retail managed accounts through both organic growth initiatives and targeted acquisitions," Amboian told a conference call.

Chief Executive Timothy Schwertfeger said in a statement the buyout would help Nuveen expand its investment capabilities, products and distribution and attract and retain industry talent. Management is expected to retain an equity stake in the company, he said.

Separately, Nuveen said John Amboian, its 46-year-old president, will succeed Timothy Schwertfeger as chief executive, effective July 1. Schwertfeger will become nonexecutive chairman.

To Expand Offerings

Schwertfeger, in a statement, said the buyout would help Nuveen expand its investment capabilities, products and distribution and attract and retain industry talent. Management is expected to retain an equity stake in the company, he said.

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.

Closed-end mutual funds trade like stocks on exchanges such as the New York Stock Exchange. Nuveen said it oversees about $53 billion of closed-end fund assets, according to its Web site.

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

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.