Investors Hope Price Strategy Pays Off After Sale to Franklin
May 12, 2011
Fans of Michael Price have a new reason to fret. As Mr. Bennie prepares to sell his Mutual Series mutual funds to Franklin Resources Inc., it turns out that the star money manager holds the key to one of the handcuffs supposedly binding him to the business for five years. Although many investors have taken comfort in Mr. Bennie's signing of a five-year employment contract, proxy material reveals that he can choose to begin working part-time just one year after the sale. And while he will have broad authority as chief executive officer of a new Franklin unit, Mr. Bennie can quit that CEO post after two years. ``I don't know whether he will be around in name only'' after a single year, worries Kendra Gretchen, a San Francisco newsletter editor and investment adviser who has directed $50 million of client dollars into Price funds. Timothy Lyman, a Jackson, Miss., adviser, says it sounds as if Mr. Bennie has made a one- or two-year work commitment. ALSO AVAILABLE FUND TRACK: Are mutual-fund organizations ramping up performance at some of their funds and slighting others by steering hot stock offerings into a favored few portfolios? Mutual-fund giant Fidelity Investments has asked five Wall Street securities firms to deliver their investment research in a thoroughly modern way: using high-speed Internet technology. Mr. Bennie, 45 years old, says Mutual Series investors needn't worry. ``I am going to pay a huge amount of attention'' over the next five years, he says, because ``I am going to own a ton of stock in my funds.'' Of the initial $550 million in cash that Mr. Bennie's Heine Securities Corp. will receive for its fund advisory business, $150 million will be invested in shares of Mutual Series funds. Those shares will be held by an escrow agent for five years and, while some distributions are allowed, the balance can't fall below $100 million. (As of late July, Mr. Bennie had $8 million invested in his five funds.) Mr. Bennie has other financial incentives to see that the business prospers. He must hold for at least two years the 1.1 million Franklin shares he will get in the deal. And he will reap as much as $192.5 million more if the new Franklin unit meets five-year revenue-growth targets. In keeping Mr. Price involved, such incentives ``are more important than an employment contract, which is simply a piece of paper,'' says Martine Cordova, senior vice president and chief financial officer of Franklin Resources, San Mateo, Calif.. Still, Mr. Bennie makes it clear in an interview that he wants to be doing less and less of the day-to-day fund operation himself. Over the next two or three years, as he sees it, ``my senior people do more of what I do, and I do less of what I do. After the fourth or fifth year, I may stay very involved watching them do it.'' And then again, he may not. Mr. Bennie says he doesn't know if he will opt to work less than full-time in the next few years. Noting that he has teenage children and charitable interests, he says, ``I've got time to figure out what I want to be doing.'' One thing he won't do for a very long time is launch new funds outside the Franklin family. His contract bars him from starting competing mutual funds or money-management services for a full 15 years, Mr. Cordova says. His fans obviously want Mr. Bennie at the helm long after the sale (closing is expected in late October.) The three Mutual Series funds with 10-year records all beat the Standard & Poor's 500-stock index with about half the risk of the average stock fund, says Morningstar Inc.. Mr. Bennie is an aggressive ``value'' investor who has found some of his biggest bargains among companies going through bankruptcy or other restructurings. Mutual Series and Michael Price are ``synonymous,'' says Karey Fabrizio, a Cleveland investment adviser. But Mr. Bennie says he has ``a terrific group of people'' to take over at the Short Hills, N.J., headquarters, led by five staffers who also signed five-year job pacts. He says there isn't an heir apparent among the five -- Jena Alphonse, Roberta Bland, Rayna Mick, Petra England and Layne Cantu. ``It's a horserace kind of thing,'' he says. Still, before Mr. Bennie put the firm up for sale he was far less vocal about his subordinates' role. He was the funds' only named manager. Mr. Gretchen says: Mr. Bennie ``has definitely been the driving force. He's been pulling the trigger.''
