LONDON (Reuters) – Henderson Group (HGGH.L) scooped rivals to buy New Star Asset Management (NSAM.L) as New Star’s creditor banks sought a quick-fire deal and stomached a more than 100 million pound loss on loans to the business.
Henderson would become the UK’s fifth-largest retail asset manager after the deal, and its shares rose more than 17 percent.
The Anglo-Australian fund manager said it would pay 22 million pounds ($31.04 million) for New Star’s ordinary shares, equivalent to 2 pence a share.
It would spend a further 73 million pounds for preference shares to be issued as part of a debt restructuring deal agreed by struggling New Star in December.
“You have to see this as an acquisition of talent while at the same time acquiring a book of assets at a very attractive price,” Henderson Chief Executive Andrew Formica said.
Henderson first revealed it was in talks with New Star on Monday, amid press speculation that Schroders and Aberdeen Asset Management might also bid for the company, which had fallen into the hands of its creditor banks since December.
Henderson would also pay 20 million pounds to cover New Star’s remaining borrowings, leaving it debt-free. It said the takeover would generate one-off integration costs of 31 million pounds, but would contribute to earnings from 2010.
A sale of New Star had been in doubt due to its 260 million pound debt pile, built up to fund a share buyback program.
However, in December, a banking syndicate made up of Lloyds, HSBC, Royal Bank of Scotland and National Australia Bank agreed to take a 75 percent stake in return for cancelling their 240 million pound debt portion.
Formica said he believed his 115 million pound ($162.3 million) offer for struggling New Star had undercut fellow bidders, reported to include Schroders (SDR.L), but that banks favored the deal offering the quickest exit.
The price meant banks would have to stomach more than a 100 million pound loss on loans to New Star, Henderson said.
A tie-up between New Star and Henderson’s UK business would rank as the country’s joint fifth-biggest retail fund manager, with assets under management of 15 billion pounds, including 10 billion pounds of New Star assets, Henderson said.
Formica told Reuters in an interview that Henderson will not seek to sell parts of New Star once the transaction completes and would be likely to keep the New Star brand.
New Star founder John Duffield would leave the firm after completion of the deal.
Client outflows have slimmed that figure down sharply over the last few months, as the company suffered from poor performance amidst a negative news flow.
“Even though it’s clearly our hope and belief that we’ll work toward reducing this attrition and even turning them around, we did factor in significant redemptions continuing through 2009,” Formica said.
The offer for New Star came in anticipation of an upturn in the asset management sector beyond 2009.
“It will more likely be pushed, in terms of confidence, into 2010. But you really want to be positioning and preparing your business to capture that,” he said.
In a trading update, Henderson also said it had a 2008 pretax profit of about 80 million pounds, and would recommend a final dividend of 4.25 pence per share, taking the total payout for the year to 6.1 pence.
New Star shares, which peaked in August 2007 at almost 420 pence, were flat at 1.85 pence by 1123 GMT, while Henderson shares were 17.7 percent higher at 73.
By Joel Dimmock and Myles Neligan
(Editing by Andrew Macdonald)