Principal Financial Group’s CEO says he doesn’t anticipate any regulatory issues that would prevent the proposed $1.2 billion acquisition of Wells Fargo’s retirement businesses from being approved. 

In an agreement announced this morning, Principal plans to assume ownership of Wells Fargo’s defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody and institutional asset advisory businesses. On a combined basis, the deal will give Principal approximately 7.5 million U.S. retirement customers, double the size of its retirement plan record-keeping business to more than 56,000 plans, and boost retirement plan assets under management to more than $500 million. The transaction is expected to close in the third quarter of this year. 

“In this day and age, size and scale matters greatly,” Houston said in a phone interview this morning. “It allows you to leverage your capabilities. All of the things that go into having a great brand and reputation goes back to size and scale.” 

Houston said he anticipates that the Iowa Insurance Division, which has regulatory authority over the deal, “will have no problem approving this.” 

Additionally, the size of Principal’s combined business following the transaction “doesn’t come close” to approaching a level that would draw federal antitrust scrutiny, he said. “I wouldn’t anticipate any speed bumps,” he said.  

Houston said he’s excited about the expertise and knowledge the Wells Fargo retirement teams bring, as well as the four primary locations that it will add to Principal’s global footprint: Charlotte, N.C.; Minneapolis; Waco, Texas; and Manila in the Philippines.  

“Best in class is what comes to my mind whenever you bring two companies together,” he said. 
“You think about the solutions, the technology you’re bringing. But at the end of the day, it’s the ability to bring their people together with our people.” 

Having completed a six-month due diligence process, “we couldn’t be happier with the expertise and knowledge of the Wells Fargo people,” he said. “And we really like the footprint that [these locations] bring to Principal going forward.”

As part of the agreement, Principal will pay up to $150 million in “earnout” compensation to Wells Fargo that would be paid out two years after the close of the transaction as an incentive for Wells Fargo. 

“It’s a very deliberate effort to create a business plan,” Houston said. “There is nothing we would enjoy more than paying that out, and the only way that we pay that out is $150 million for having exceeded our baseline expectations in the formula.”  

It remains to be seen how many of the approximately 2,500 Wells Fargo team members will be retained by Principal, but the operations are largely complementary rather than redundant, Houston said. The transaction will have negligible impact on staffing levels at its Des Moines headquarters, he said. 

As big as it is, the $1.2 billion deal will actually be the second-largest acquisition in the Principal’s history. Its acquisition of Chile pension manager AFP Cuprum SA, which closed in 2013, topped $1.5 billion.