The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, March 17 (Reuters Breakingviews) - The bidding war for money manager Janus Henderson JHG.N just got real. Gatecrasher Victory Capital VCTR.O is narrowing the gap between spreadsheets and reality by retooling its $9 billion offer to make it more competitive against an agreed sale to a group led by hedge fund manager Nelson Peltz. His Trian Fund Management has plenty of wiggle room, however, to fight back.

On paper, Victory’s bid was stronger from the jump. Originally split almost evenly between cash and its own stock, the $57-a-share entreaty, based on the interloper's unaffected trading price, came with the promise of steep $500 million cost savings. Altogether, it blew away the $49-a-share proposal from Trian, General Catalyst and Qatar's sovereign wealth fund.

Janus, which oversees about $500 billion, argues such cuts are too deep, and will potentially scare away clients, who must consent to a takeover. Selling shareholders should care, because they’ll end up with a stake in the combined company. By bumping its cash component up to $40, from $30, Victory is reducing the degree of trust required. Janus investors, who would now receive a 31% stake in the enlarged company, lose nearly $2 a share in synergies, once taxed and capitalized, but the reworked offer also takes the sting out of a recent decline in Victory’s stock price.

There may still be a case that the deal's structure creates existential risks. But an analysis by the Janus board's own bankers indicates that the proposed cost reductions are similar, proportionally, to previous Victory transactions, which have hardly hurt performance. Even so, this is a far bigger tie-up, and the size brings increased difficulty. Extra cash lessens the uncertainty.

Team Peltz can afford to pay more. The consortium is stumping up about $2.3 billion in committed equity, raising $3.9 billion in debt and $1 billion in preferred investment from insurer Massachusetts Mutual Life Insurance. Treat the leverage and the preferred components the same, for simplicity’s sake, and assume interest costs of more than 7%, a typical yield for today's buyout debt.

If Janus Henderson's revenue were to keep growing by 7%, per estimates compiled by Visible Alpha, while spare cash flow is used to pay down debt, the agreed deal looks promising. If Peltz and friends exit in five years at the same acquisition valuation multiple, they're on track to triple their money at a nearly 29% return, according to Breakingviews calculations. There is clearly room to maneuver.

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CONTEXT NEWS

Asset manager Victory Capital said on March 17 that it had adjusted its unsolicited offer for rival Janus Henderson to sweeten the price and include more cash.

Its previous bid comprised $30 in cash and 0.35 shares of its stock for each of the target's shares, a mix has now changed to $40 of cash and 0.25 of its shares. Compared to Janus Henderson's undisturbed price, the new package boosts the premium being paid, but based on Victory's trading price, total value falls slips to $56.84 per share from $57.04 previously.

Janus Henderson rejected Victory’s earlier offer on March 11. The money manager agreed on December 22 to be acquired by Trian Fund Management and General Catalyst.

(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))