With the UK generously forecast by the IMF to be about to suffer more than any other industrialized economy this year, you could be forgiven for thinking that spending cash on acquisitions might not be at the forefront of the minds of company heads. Except, that is, for when there are serious bargains to be had.
Henderson Group this morning confirmed it is to acquire ailing New Star Asset Management Group for £115 million or 2p per share—no doubt a meagerly offering in the eyes of New Star investors who last summer saw their shares peak at 480p—but a price tag that has earned Henderson shares a round of back-patting. Henderson shares led the mid-cap risers in early afternoon trade with a 20% intraday increase to 74.25p.
Henderson believes the acquisition will significantly strengthen its position in the UK retail fund management market. With combined assets under management (AuM) nearing £60 billion, the new group would rank fifth largest in the UK industry by funds under management.
New Star executive chairman, John Duffield, who owns around 10% of the company but is not expected to stay following completion of the company’s sale, said in a statement that Henderson is an "excellent partner for New Star, offering strong support and certainty to New Star's clients and staff in these times."
The news was certainly well-received: among the upbeat noises coming from the market, analysts at Evolution Securities described it as a “neat deal” adding that they don’t normally agree with growth by acquisition in the fund manager space, as there are no virtues in size, but that this move looks to be relatively contained.
Evolution reiterated its Add recommendation and 80p price target on the Henderson stock, noting that while all acquisitions carry risk it is reasonably confident that this deal will be significantly accretive. Indeed, Henderson expects to see a positive effect on earnings by 2010.
New Star preference shareholders will receive 0.4 Henderson shares and 48.4p for each original share, while Henderson will also pay around £20 million to cover the group’s debt. To part finance the recommended cash offer, Henderson was today placing up to 72.3 million new shares in the market, about 10% of its existing equity, aimed at raising around £40 million.
Henderson accompanied news of its proposed acquisition with a trading update in which it revealed AuM declined by 3% over the final three months of 2008, ending the year at £49.5 billion, and said it expects to post a full-year pretax profit excluding non-recurring items in the region of £80 million for 2008. The group also announced a final dividend of 4.25p per share, amounting to a total dividend for the year in line with the previous year’s at 6.1p. This announcement appeared to be of little interest to investors who instead preferred to focus on the 'happy' acquistion news.
The New Star acquisition is expected to be completed in April 2009.
