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Rating:CitiStreet is Being Shopped, Say Sources Not Rated 4.0 Email Routing List Email & Route  Print Print
Friday, February 29, 2008

CitiStreet is Being Shopped, Say Sources

Reported by Neil Anderson, Managing Editor

As reported by The MFWire's sister publication, CitiStreet, the joint venture between Citi and State Street, is for sale. Those in the fund industry will want to keep an eye on this deal because CitiStreet is a large source of distribution across all defined contribution plan markets.

Word that the top five DC plan recordkeeper could be on the block has been winding through the industry for several months. Now multiple sources have told The 401kWire that the joint venture backed by Citigroup and State Street has hired Goldman Sachs as its banker.

CutiStreet spokesman Mike Bezdek said the firm does not comment on rumors or speculation. A Goldman Sachs representative forwent the opportunity to comment.

The 401kWire first reported back in December that CitiStreet could be on the block. And now, sources outside the recordkeeper claim that a pitch book started making the rounds this month and that due diligence is being done, and that some Citistreet employees have already started circulating their resumes in case a deal goes through.

Who might buy? In an ever-consolidating marketplace, and with such a large player on the block, insiders say that almost every provider in the business would have to at least take a look at the pitch book. Bank of America, led in the retirement arena by Jeff Carney, is still the giant everyone's watching to where it makes its move.

Meanwhile, one industry insider suggested looking "outside the box" for a possible buyer, suggesting that Citistreet is large enough and its business diverse enough that even a non-retirement player might consider buying it to get into the space.

Sources who claim knowledge of the reason for the possible sale point to Citigroup's woes in the credit market as one driver for the sale.

One of those sources told The 401kWire in January that Citi offered to sell its half to State Street, but SSgA passed.

Indeed, a sale of the CitiStreet business will be one of the most complex the business has seen, on two levels.

One twist is its capital structure since it is half owned by Citigroup and half owned by State Street. A buyer would either have to be willing to purchase both stakes or agree to co-own the business with State Street, if sources who report that State Street has no interest in selling are correct.

That structure is also complicated by the disparate growth rates in business contributed by the two owners at CitiStreet's formation, one source said.

A second issue is the number of disparate business now falling under the CitiStreet umbrella. Those operations include the legacy Copeland Companies business that serves the smaller and mid market, the SSgA business that was in the large plan market, recordkeeping for the Travelers-owned annuity-based business, a legacy TRO business from State Street's Wellspring unit and a large 457-focused business unit. And Citistreet also has a substantial book of defined benefit business.

CitiStreet has been working to more fully integrate these businesses in recent years. A question would be whether one buyer would want to take, or could take, all of those business or whether there would be multiple sales or if one or both of the partners would keep blocks of the businesses.

If the deal goes through, it would be the largest in the past two years for the industry, according to The 401kWire's deal sheet

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