(Beijing) – China's leading investment bank and brokerage Citic Securities is close to inking a US$ 1.8 billion deal for Russell Investments, a global asset management firm that focuses on the U.S. market, a person with first-hand knowledge of the matter says. Shanghai- and Hong Kong-listed Citic Securities, partly held by the state-owned financial powerhouse Citic Group, plans to buy the firm from the London Stock Exchange (LSE) through a subsidiary called Citic Securities International Co. Citic Securities and LSE were negotiating terms of a possible agreement as of August 18, the source said. He did not say whether the two sides had a timetable for closing a deal. The bid submitted by Citic Securities topped offers from several other interested companies including Towers Watson, an American risk management and human resources consultancy, and Shanda Group, a Chinese online gaming and investment conglomerate, the source said. An acquisition would give Citic Securities its first access to the U.S. market. The firm has been trying to get a foot in the door since 2006, with limited success. "Acquiring Russell Investments means opening a window to the U.S. market for Citic Securities," another person familiar with the matter said. "Russell Investments has strong research capabilities and financing power abroad." Last year, Citic Securities bought an undisclosed stake in the New York-based brokerage BTIG. And the Chinese firm is seeking cooperation pacts with several other institutional firms abroad, according to a source, including Brazil's investment bank BTG Pactual and the German investment bank goetzpartners Corporate Finance. Seattle-based Russell Investments has US$ 270 billion worth of assets under management globally this year, up US$ 20 billion from 2014. Media reports describing LSE's interest in shedding Russell Investments, the asset management arm of Frank Russell Co., surfaced in January. LSE bought Frank Russell from Northwestern Mutual Life Insurance, which is based in the U.S. state of Wisconsin, for US$ 2.7 billion in June 2014. Another person close to the negotiations said the bourse was only interested in Frank Russell for its Russell Index business, which provides widely tracked stock indices, mainly for the U.S. market. Under terms of its bundled deal with Northwestern for Frank Russell, that source said, LSE had paid US$ 700 million for Russell Investments. That means Citic Securities' estimated US$ 1.8 billion bid is not only more than 150 percent above what LSE paid, but it would apparently make Russell Investments more valuable than many competitors in the United States. Russell Investments does not report its income or liabilities. But Caixin calculated that it has a 15.6:1 ratio of enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA), assuming its debt accounted for about half of the US$ 1.1 billion owed overall by Frank Russell. That is higher than those at most of the 26 major U.S. asset management companies with EV/EBITDA ratios listed by Bloomberg. Citic Securities' apparent bid "does seem a little too expensive," said an analyst who has been closely following the negotiations with the LSE. But a government researcher called the Citic Securities bid reasonable, arguing that it is an asset that fits the Chinese firm's long-term strategy. Such a strategic investment justifies a premium price because the buyer has priorities beyond a simple financial investment, said Zeng Dansuo, a researcher working for an institution affiliated with the Ministry of Commerce. Caixin also sought a comment from the Citic Securities official overseeing the proposed transaction, Chief Financial Officer Ge Xiaobo. But Ge declined to comment. Citic Securities approached LSE in late 2014 to discuss a possible deal for Russell Investments, a source familiar with the takeover talks said. Russell Investments "knows local (American) financial products very well and has a huge customer base overseas," the person said. "These are all crucial to the internationalization of Citic Securities." The firm would be Citic Securities' second major all-out purchase of a foreign institution, following its 2013 buyout of the Hong-Kong based brokerage CLSA Asia-Pacific Markets from controlling shareholder Credit Agricole Bank. Citic Securities integrated CLSA's operations, and in May the firms launched a new international capital markets service that Citic Securities Chairman Wang Dongming said underscored his firm's "inspiring progress in implementing an internationalization strategy." "The foreign investment banking services of Citic Securities will join the global market as a united team and with a new face," Wang said. Early Ambitions Citic Securities' global ambitions first became apparent in 2006, when it established Citic Securities International. Soon afterward, Citic Securities International tried to cooperate with New York-based Bear Stearns, which was then America's fifth-largest investment bank and brokerage firm. At a shareholders meeting at the time, Wang called on his firm to pursue foreign business opportunities because "we cannot do business right in China if we don't do business abroad." But the initiative collapsed in 2008 after Bear Stearns was devastated by the global financial crisis and taken over by JPMorgan Chase. In 2009, Citic Securities International co-founded an investment bank called CSIP with U.S. Evercore Partners Inc. But the joint venture failed after completing only a handful of projects and shut down in 2012, according to the person who said Citic Securities was buying Russell Investments. Citic Securities also opened a New York office in 2009 and won several business licenses, including a license for investment banking. But the firm failed to attract enough clients to make the operation worthwhile, the person said. He said Citic Securities executives then chose to try a different path: They started exploring potential mergers and acquisitions involving overseas-based companies that could offer access to foreign markets. A Russell Investments buyout fit that strategy. If a deal with LSE can be reached, the source said, Citic Securities would integrate its existing asset management subsidiary with Russell Investments and put the new division to work handling overseas business. (Rewritten by Wang Yuqian) You've accessed an article available only to subscribers VIEW OPTIONS
CITIC Securities is reportedly nearing a deal to acquire Seattle-based Russell Investments , a global asset management firm, for a price thought to be $1.8bn; it is not known when the deal will be completed. An acquisition would represent the Chinese company's first penetration into the US market, something that it has been trying to achieve since 2006.