Invesco net down, but shares rise on acquisition

Asset manager Invesco Ltd said quarterly profit fell 20 percent as investment management fees declined, but its shares rose on news of a deal to buy the mutual fund business of Morgan Stanley.

Invesco reported earnings a day after announcing the deal to acquire Morgan Stanley's retail asset management business, including Van Kampen Investments, for $1.5 billion.

Investors reacted favorably to the transaction, which will give Morgan Stanley a 9 percent stake in the money manager. Invesco shares were up 3.5 percent in morning trading.

We think the deal makes a lot of sense both from a strategic standpoint as well as financially, Sandler O'Neill analyst Michael Kim wrote in a research note.

He cited what he called an attractive valuation in the deal as well as the fact that Morgan Stanley's funds are doing well, with 77 percent in the top half of their peer group over the past three years.

For the third quarter, Invesco said net income attributable to common shareholders declined to $105.2 million, or 24 cents a share, from $131.8 million, or 33 cents a share, a year earlier. The results matched the average analyst forecast, according to Thomson Reuters I/B/E/S.

Assets under management hit $416.9 billion, up 7.3 percent during the quarter, thanks mainly to rising equity markets around the world. The Standard & Poor's 500 gained 16 percent in the third quarter, its best quarterly performance since 1998.

Echoing a trend seen at other asset managers, customers added a net $2.6 billion to Invesco's long-term funds during the quarter, and withdrew an equal amount from its short-term money market funds.

Operating revenue at the fourth-largest asset manager by market capitalization slid 15 percent to $705.8 million.

The Morgan Stanley deal, expected to close in mid-2010, will add $119 billion of assets and link Invesco more closely with the brokerage giant. Invesco said the deal would be accretive to earnings in the first 12 months after closing.

The company's shares were up 3.5 percent to $23.94 in morning trade on the New York Stock Exchange. They hit $24 earlier, their best level since September 2008. (Additional reporting by Christian Plumb; Editing by Lisa Von Ahn and John Wallace)