Thursday, March 12, 2009

Anyone Hearing AllianceBernstein Takeover Rumors? AllianceBernstein Wants to Know.

UPDATE - apparently takeover rumors did surface prior to this posting.


Is anyone out there hearing rumors of a takeover of asset management giant AllianceBernstein (AB) LLP? Because the folks at AllianceBernstein are looking for them:


According to, these searches came from AllianceBernstein units in both the US and UK. They hit two older posts of mine: one discussing the company’s third-quarter 2008 results, and one on why investors should ignore takeover rumors.

Now why could people from within the company be searching for takeover rumors? It’s possible that the company is working on something and is checking the web to see if anyone’s got wind of a deal. Secondly, it’s something that people who work for public companies do. I did it myself when I worked for

AllianceBernstein, which is actually a publicly-traded master limited partnership, has gotten absolutely creamed, along with the rest of the sector, and I fully expect consolidation. In fact, I would not be surprised to see Warren Buffett become interested in some of these names given his positive long-term view of the U.S. stock market.

Stocks like T. Rowe Price (TROW), Legg Mason (LM), and Janus (JNS) are very much levered to the performance of the stock market, but they are huge cash flow generators and ripe to be bought during bear markets at reasonable multiples to both earnings and assets under management (AUM).

Profits of asset managers skyrocket in bull markets because of the inherent operating leverage in the model. In a rising market, the growth of revenue will dramatically outstrip the growth of expenses because there aren’t many variable expenses. Managing $100 billion doesn’t cost twice as much as managing $50 billion. Therefore, it makes sense to acquire asset managers when things are in the toilet. Cheap multiples on cyclically low earnings can’t be beat.

For now I’ll stick with my positions in optionsXpress Holdings (OXPS) and Raymond James Financial (RJF). As a rule, I don’t buy on takeover rumors and I’m not doing so now when I'd be in the position of looking like I'm pumping and dumping.


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