Janus Capital may give a boost to its balance sheet by selling shares it owns in DST Systems back to the Kansas City firm. The sale could net Janus as much as $1.1 billion for 31.5 million of the 39.7 million shares it owns in Kansas City-based DST.

The Denver-based fund firm started looking for a buyer for its 34 percent stake in DST after it started its reorganization from Stilwell Financial last year. The fund firm plans to use the capital it raises through a sale of the shares to pay off outstanding debt. The entirety of the debt issued by Janus amounts to $854 million.

Now DST officials have confirmed that the firm plans to raise $700 million through a private placement sale of convertible senior debentures to finance a buyback from Janus with a bond offering. The convertibles would mature in 2023. There is also speculation that the firm may sell stock that it owns in State Street Corp. or Computer Sciences Corp. to help finance the deal.

The two firms are reportedly still negotiating the deal. Janus has said that it is seeking to minimize the tax liability resulting from any deal by structuring it as a share exchange transaction in which Janus swap its DST shares for the common stock of one of DST's subsidiaries holding certain business and additional assets, according to DST.

Those additional assets are expected to include some $895 million in cash and as much as $150 million in notes for a total of between $830 million and $990 million, according to DST officials. Details of the business include in the DST subsidiary to be traded were not provided by DST. It confirmed that the total transaction would be valued at between $950 million and $1.1 billion.

Stock analysts seem to like the outlines of the deal that is in the making. Both Robert W. Baird raised its rating on DST Systems stock to "outperform" with a target of $45. Meanwhile, Merrill Lynch raised its rating on the stock of Janus Capital Group Inc from "neutral" to "buy". It raised its target price on the stock to $23 from $21.  

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