KeyCorp (KEY) has decided to sell-off its investment management subsidiary, Victory Capital Management and broker dealer affiliate Victory Capital Advisers. The company signed a deal with Crestview Partners – a private equity firm – to vend the subsidiary for $246 million in cash and debt.
KeyCorp stated that out the total sale price, $201 million is in cash, while the remaining $45 million is a seller note, whose final value would be determined by the end of the year. The company anticipates, upon closing, the deal will lead to after-tax gain in the range of $145–$155 million.
The transaction though consented by the board of directors of Victory Mutual Fund is still subject to customary closing conditions and approvals of the Victory Mutual Fund shareholders and certain investment advisory clients. Moreover, the sale is expected to be completed by the end of the third quarter of 2013.
Morgan Stanley & Co. LLC – a unit of Morgan Stanley (MS) – acted as a financial advisor, while Sullivan & Cromwell LLP provided legal advice to KeyCorp for this deal.
KeyCorp intends to utilize the gain from the sale to the subsidiary for repurchasing shares and would seek regulatory approval for the same. Earlier in Mar 2012, following the approval from the Federal Reserve, as part of the Comprehensive Capital Analysis and Review, the board of directors of KeyCorp authorized a share repurchase program of up to $344 million, to be completed by Mar 31, 2013.
As of Dec 31, 2012, KeyCorp bought back shares worth approximately $256 million. The company has $88 million worth of buyback authorization remaining under the current program.
KeyCorp’s decision to vend its subsidiary is a part of its strategy to focus on the core banking operations. Further, this would enhance investors’ confidence in the stock, as the company plans to utilize the cash to meaningfully deploy capital.
Currently, KeyCorp retains a Zacks Rank #3 (Hold). However, other major regional banks, BankUnited, Inc. (BKU) and State Street Corporation (STT) carry Zacks Rank #1 (Strong Buy) and #2 (Buy), respectively and are worth considering.
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