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Bruce Crockett |
Invesco completed its acquisition of the Van Kampen Funds from Morgan Stanley in June. The combined board now oversees $168 billion in assets: $91 billion in equity, $26 billion in long-term fixed income and $51 billion in money markets. Coming off of the combined board's first integrated meeting last month, Bruce Crockett, chairman of the Invesco funds, gave FD a behind the scenes look at the acquisition and the process of merging the two fund boards.
FD: What actions did you take when you first learned about the possibility of the merger?
BC: Management briefed our board during the fall that negotiations were going on and gave us an idea of the magnitude of the effort. The board had an executive session and discussed the acquisition after it had been briefed. The board then reviewed all of the public information as it related to both the Van Kampen and Morgan Stanley assets. This was still in the early days as the management negotiations took a while. We were, in essence, waiting for the two management teams--Morgan Stanley and Invesco--to reach a deal, which happened in late fall.
What was striking to us from the very beginning was what a nice fit this was strategically with Invesco's strength in growth stocks, money market funds and taxable fixed income and Van Kampen's incredible value equity shop and presence in municipal bonds. When you put the two together they were very complementary, bringing an increase in the total assets under management and improvements in the breadth and depth of the offerings.
FD: How did you build the overall board framework?
BC: The first thing that happened is I had one-on-one meetings with Wayne Whalen, then chairman of the Van Kampen board, and Michael Nugent, chairman of the board of the Morgan Stanley funds. We began to socialize the issues related to a combination, keeping in mind that Morgan Stanley and Invesco were still working out the details of the acquisition. We were running on a parallel path to try and at least get our arms around the issues that we would face assuming the merger were to go through. When it became more apparent that the deal was going to go through we got into more discussions with other board members as to what the size would be of the single combined board.
We began to talk about which directors would come over, the retirement and the deferred compensation plans as they related to each of the boards and how they might be integrated.
FD: How did you work out the board merger?
BC: Once we agreed on how many board members were coming over from Van Kampen, the question became who would be offered up from their side because not everyone wanted to be considered. We were given a list of directors from Van Kampen and sat down and had discussions with them. From that process we came up with the slate of four--interested director Wayne Whalen and independents Rod Dammeyer, David Arch and Hugo Sonnenschein--who we thought were the best fit and would bring a complementary set of skills to the table.
This took our board from 13 to 17, which was a little large, but four or five of the directors reach mandatory retirement age within the next four years or so. In the meantime, we can use all of the able-bodied arms and legs to help us with the additional work necessary to get through the integration process. The timing and the expansion of the board fits perfectly with this incremental workload. As that workload slows down and as the mergers and integrations of the two operations become more like one, our board will naturally shrink back down.
FD: What is your assessment of the cultural differences between the two organizations and did that pose an obstacle?
BC: It turns out that the Van Kampen value shop is based in Houston, about three miles from Invesco's buildings. The whole process of integrating the value shops into one combined operation was very easy. They are all relocated into the Invesco building now. Van Kampen and Morgan Stanley had offices in New York, Illinois and other locations, which are in the process of being sorted out by management to come up with one effective integrated operation.
From a board perspective, it wasn't very hard to integrate culturally. The Invesco board has a little bit more of a performance and an investment orientation; Van Kampen maybe a bit more of a legal orientation. I wouldn't say that we aren't without lawyers because we have a ton of them in one form or another, but bringing the two orientations together was quite complementary.
FD: Was there anything unique about this acquisition as opposed to some of the others the board has experienced?
BC: This acquisition was a little bit bigger than the others, coming close to doubling our size, which tended to be more incremental. Also, the fact that there were two fund complexes involved--Morgan Stanley and Van Kampen--was the other difference.
FD: What role did the Morgan Stanley board play in the process?
BC: They were part of the entire process. A couple of their directors serve on the closed-end fund assets that came over. The Van Kampen closed-end fund assets did not come over and are still governed out of Chicago. The Morgan Stanley closed-end fund assets came over and two directors from the Morgan Stanley fund complex board will continue to serve for a transition period on those closed-end fund boards, which are now Invesco funds. Part of that transition period relates to the auction-rate preferred securities that came over in the portfolio and the excitement around those assets (see related story).
FD: Looking back, what advice would you give another board about to embark on a similar situation?
BC: The one real lesson that comes out of all of this is that if you are going to have one combined board you better agree on all of the issues before the merger is consummated. It becomes potentially more difficult afterwards. Boards by their very nature and by law are independent so they have a lot of say in how things progress. To work out all of those social and cultural issues before a deal gets announced is a necessity when aiming for one combined board, as was our objective in this case. There are cost and economies of scale benefits to having one combined board. Also, the synergies that exist seem to make more sense.