Ameriprise Financial Inc. (AMP) announced the divestiture of its independent broker-dealer business unit Securities America Financial Corp. and its subsidiaries, to Miami-based Ladenburg Thalmann Financial Services Inc. (LTS) in a $150 million deal.
As per the agreement, Ameriprise would receive additional cash payments in 2012 and 2013 if Securities America fulfills certain financial objectives. The deal, which is expected to close by the end of this year, is subject to regulatory approval (including customary closing conditions). However, Ladenburg's shareholders' approval is not required.
Ladenburg provides investment banking and capital market services primarily to middle-market and emerging companies. Furthermore, Ladenburg entered the broker-deal business with the acquisitions of Investacorp in 2007 and Triad in 2008.
Following the completion of the transaction, the combined company will have about 2,700 financial advisors and approximately $70 billion in client assets. The deal will be financed by an affiliate of Phillip Frost, Ladenburg's principal shareholder and board chairman.
Furthermore, based on the trailing 12 months data, the combined entity will have nearly $675 million in revenue. Additionally, the President and CEO of Securities America, along with the other senior members of the management team, would continue to operate Securities America as an independent unit.
Ameriprise had acquired Securities America in 1998. Presently, Securities America has a nation-wide presence with about 1,700 financial advisors and nearly $50 billion as client assets (including over $15 billion in assets under management).
The announcement of the sale of Securities America followed Ameriprise’s declaration of its plan to divest the unit in April. Earlier in that month, Securities America had agreed to pay nearly $150 million to settle a class-action lawsuit alleging that it did not do proper due diligence on investments it sold to the investors. However, owing to the cash crunch at Securities America, Ameriprise had agreed to pay about $118 million of the settlement charges.
From the second quarter of 2011, Ameriprise reclassified Securities America as discontinued operations and valued the business at $60 million. However, the gain of $90 million from the sale of the unit would be lowered by an agreement to indemnify Ladenburg from certain lawsuits and other merger-related costs.
The sale of Securities America would allow Ameriprise to focus its resources on its own branded-adviser business and gain more foot-hold in that business. Furthermore, though there is concern over the sluggish market recovery, an improvement in retail client activity and decent growths in Advice & Wealth Management and Asset Management businesses would drive operating leverage in the upcoming quarters.
This justifies Ameriprise’s Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we maintain our long-term “Neutral” recommendation on the stock.
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