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Thursday, February 12, 2004

Strong CEO Says Sale is Near

by: Sean Hanna, Editor in Chief

Strong Financial's new chief executive believes that the fund firm will reach a settlement with government officials "very, very soon" and that it could close with a buyer "quite shortly."

CEO Kenneth Wessels said that a deal could be concluded in weeks rather than months during a meeting of the Milwaukee County Pension Board. In the meeting he added that Strong will likely settle its legal issues prior to closing a sale agreement.

He said that the resignation of founder and former CEO Richard Strong allowed the fund firm to go back to the SEC and state investigators to renew their discussions on a settlement. Mr. Strong may also settle at the same time, although it could be executed separately from the company's settlement, said Wessels.

Any buyer would also have to have a commitment to continue a presence for the firm in Milwaukee, he told the board.

Fund industry consultants, however, say that a buyer that already has a significant presence in the fund marketplace would gain little by maintaining duplicate efforts in Wisconsin. Strong owns its headquarters in Menomonee Falls, a Milwaukee suburb, and employs some 1,200 workers at the campus.

"You'll be comfortable with the type and name and quality of a partner if we chose one and they chose us," Wessels told the board. "I do believe there will be a significant presence not only in Wisconsin as Strong moves forward but obviously in the Milwaukee area."

He added that he is negotiating for Strong's investment team to be kept together for "at least two or three years" and possibly longer, Wessels said.

Wessels also told the board that the firm has lost fewer employees than expected because of the regulatory taint.

"We had some attrition, about 55 or 60 associates, while we usually lose 25 to 30 a year. That's less than we thought," Wessels said. "None of our investment teams have left, which surprises me, as a relative outsider to Strong Capital."

However, Strong Capital did lose a $132 million mandate with the Oregon college savings plan, among others. The board running the 529 program said that four possible replacements for Strong.

The finalists include MFS Financial and State Street's Schoolhouse Capital unit that already run advisor-sold 529 programs for the state. The new bidder is MassMutual's OppenheimerFunds, according to State Treasurer Randall Edwards.

The board is set to meet next week to select a winner on the mandate. , and include about $20 million in Oregonians' assets. The mandate covers five age-based portfolios that carry expenses of 75 to 100 basis points. Oppenheimer's bid also reportedly includes as many as five Vanguard index funds. MFS is also proposing to include Vanguard funds in its program.

While the Schoolhouse bids include annual account maintenance fees of either $20 or $22, the Oppenheimer and MFS bids both waive commissions and account maintain fees.

Though the MFS bid is competitive in terms of investor expenses, the board could be tilted against the Boston-based firm because of its recent settlement of charges relating to timing agreements it made with market timers.

The conversion of the plan from Strong is targeted for this summer.  

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