Franklin Resources: Putnam Purchase Seems to Be More About Distribution Than Asset Management

We expect to lower our $26 fair value estimate for narrow-moat Franklin Resources following the firm's announcement that it is acquiring Putnam Investments from Canadian life insurer Great-West Lifeco for an estimated up-front consideration of $925 million, comprising 33.3 million of its shares at the deal's close and $100 million in cash six months after the transaction. Franklin is also obligated to pay up to $375 million to Great-West anywhere between three and seven years after the deal is consummated, depending on the growth of a newly formed partnership between the U.S.-based asset manager and Great-West and its parent company, Power Corp. of Canada, to distribute Franklin's products, especially in the wealth, insurance and retirement channels.