Pioneer's Sale Narrowly Averts Proxy Battle

Venerable but struggling fund manager Pioneer Group   averted by one day a contentious shareholder meeting set for Tuesday by announcing it would be sold to Italian banker UniCredito Italiano Group for $1.2 billion in cash.

Pioneer had been locked in a proxy battle with shareholder activist group Lens Asset Management over a possible sale and charges and counter-charges concerning mismanagement and shareholder value. Before the sale was disclosed, the meeting had promised to be the next step in that battle.

A focus of Lens was a higher stock price, and it certainly succeeded. Since the group started its campaign about three months ago, Pioneer's stock has more than doubled, and it has more than quadrupled from its 52-week nadir of $10 in October.

Lens had said the company's shares should fetch as much as $42 a share, much higher than Friday’s closing price of $31.

As it turns out, Lens was a little short in its estimate of the company’s worth. UniCredito will pay $43.50 per share in cash for the money manager, nearly a 40% premium over Friday’s closing price. Shares of Pioneer Group hit a new 52-week high of 42 ½ on the news before closing at 42 1/16, a gain of 35.7%.

The decline in stock price reflected Pioneer's poor business performance: It posted five straight quarters of net losses in 1998 and 1999. Since then, it has reported small profits in three consecutive periods.

The losses seemed particularly galling in the light of one of the best markets in recent memory for a number of other money mangers.

From Lens’ point of view, the reasons for such poor performance were many. It cited a number of recent forays into areas outside of the company’s core businesses, such as mining operations in Russia and Ghana that turned out to be failures. More importantly, however, it charged that Pioneer placed its true calling--money management--in jeopardy by squeezing resources and people away from the funds it managed.

Pioneer’s 20 funds have operated primarily with a focus on value during the recent bull market, only adding a number of smaller-cap and growth funds in recent years. As well, a series of poor performances has contributed to an exodus of assets from its funds. Outside of two of its most popular funds, Pioneer  (PIODX) and Pioneer Growth , around $2 billion has left the fund family in the last three years.

Once the proxy battle heated up, however, the biggest bone of contention became a series of retention agreements given to Pioneer directors and top executives. The agreements, commonly called golden parachutes, provided for cash outlays of up to six times the executives' annual salary if the company were sold to or merged and their jobs jeopardized as a result.

UniCredito, Italy’s second-largest bank, has been looking to boost the assets of its own fund group and continue a strategy of growth through acquisitions. A number of other bidders were said to be at the table, however, including Netherlands-based insurance giant ING Group  (ING) and U.S. fund manager T. Rowe Price Associates [ticker TROW].

As well, Pioneer announced it has sold its struggling gold-mining operation in Ghana. The deal with UniCredito calls for Pioneer to spin off the remaining non-asset-management-related operations.

The combined money management operations will be based in Italy, and will be run by Pietro Modiano, UniCredito's asset management head. John F. Cogan, Jr, Pioneer’s current president and chief executive, will become deputy chairman of the new unit.