Bank of Montreal and F&C Asset Management have announced that an agreement has been reached on the terms of a recommended cash acquisition by which the entire issued and to be issued ordinary share capital of F&C will be acquired by BMO Global Asset Management (Europe) Limited, a wholly-owned subsidiary of Bank of Montreal.
Under the terms of the acquisition, F&C shareholders will be entitled to receive 120 pence in cash for each F&C share held. This represents a premium of approximately 28% to the closing price of F&C shares as at January 24, 2014 and values the issued share capital of F&C at approximately £708m (C$1.3bn). The acquisition is intended to be implemented by way of a court-approved arrangement and formal documentation will be sent to F&C shareholders within 28 days of this announcement. F&C shareholders will be entitled to receive a normal course dividend of 2 pence per share for the financial year ended December 31, 2013. On January 28, 2014 the board of directors of F&C resolved to pay the dividend on the earlier of May 20, 2014 or the date when the cash consideration is paid to F&C shareholders on F&C's register of members at the close of business on April 4, 2014.
The board of F&C intends to recommend unanimously that F&C shareholders vote in favour of the acquisition. Subject to F&C shareholder approval and the satisfaction of all regulatory and other conditions, the acquisition will close after May 1, 2014.
Given BMO's strong capital position, no common equity offering will be required for the transaction. The impact of the acquisition on BMO's Basel III Common Equity Tier 1 ratio is approximately 75 basis points. The combination will further diversify BMO's earnings by adding fee-based income with good opportunities for revenue growth. Cost savings from the acquisition are expected to be modest. The transaction has an internal rate of return to BMO of approximately 15% and is modestly accretive to BMO's earnings per share in the first year, excluding one-time costs and the amortization of intangible assets.
'The acquisition demonstrates BMO's deep commitment to the asset management business. F&C and BMO both take pride in having built distinctive and engaging brands - grounded in a long history of trust - and we share a deeply held conviction for working in the best interests of our clients', said Bill Downe, Chief Executive Officer, BMO Financial Group. 'With an established pedigree in fixed income investment and broad equity and property capabilities across its European platform, F&C advances BMO's capabilities by adding scope and scale to our well-established portfolio of wealth management businesses.
'BMO is the oldest bank in Canada and our ties with the U.K. have been present since our founding. And as residents of the City of London and as stewards of the Bank of Montreal's long history, we are keenly aware that, in business, the thing that matters most is the quality of the work we do on behalf of our clients. We move forward today with the same confidence and optimism as when the bank opened its doors on Lombard Street nearly 150 years ago'.
Barry McInerney, Co-CEO, BMO Global Asset Management, said, 'F&C and BMO share a passion for focusing on our clients' needs. We look forward to welcoming F&C clients and employees to the BMO Global Asset Management family'.
'F&C has made significant progress in the last couple of years. We have developed new products, strengthened our distribution channels and reduced our cost base, putting the business in a strong position to move forward', said Richard Wilson, CEO of F&C. 'Looking forward, BMO represents a unique opportunity to broaden and accelerate our ambitions. The products, geographic presence and cultures of both organisations are truly complementary and with BMO's commitment to growth, this is clearly a very positive outcome for both our clients and employees. We look forward to joining the BMO organisation'.
'F&C's board of directors believes the offer represents an attractive valuation for F&C shareholders and a positive outcome for employees and clients', said Kieran Poynter, Chairman of F&C.
F&C is a diversified U.K.-based investment manager with a strong brand and footprint in the U.K. and the rest of Europe and assets under management of approximately £82bn ($136bn), as at December 31, 2013. F&C has a rich heritage that dates back almost 150 years and has a very strong brand in the asset management industry which can be traced back to the founding in 1868 of the Foreign & Colonial Investment Trust, the world's first publicly listed pooled investment vehicle. It is an investment portfolio that F&C continues to manage almost a century and a half later, evidence of the trust clients have in F&C to deliver strong returns across a range of investment cycles. Working closely with clients, F&C tailors its products and services aiming to meet their needs, both today and in the future.
F&C manages portfolios across multiple asset classes on behalf of a broad range of institutional and retail investors, including insurance companies, pension plans, sovereign wealth funds, private wealth managers, fund of funds, family offices and financial advisors. F&C is a specialist in fixed income, equities, multi-asset and real estate investment. For the six months ended June 30, 2013, F&C reported net revenue of £126m, adjusted cash earnings of £28m and EBITDA3 of £50m.
Established in 1817 as Bank of Montreal, BMO Financial Group is Canada's first bank and has been operating continuously in the U.K. since 1870. BMO Global Asset Management's Lloyd George Management and Pyrford International, both have offices in London. BMO Capital Markets, the investment and corporate banking arm of BMO, operates in London and select European locations.
By doubling assets under management, the acquisition will position BMO Global Asset Management as a globally significant money manager, adding scale, resources and capabilities to its investment platform, while providing attractive cross-sell potential into wealth markets in the U.K. and the rest of Europe.
BMO Global Asset Management currently operates multi-disciplined investment hubs in Canada and the United States, in addition to a number of specialized equity boutiques in the U.K. and elsewhere. The U.K. and European markets are strategically important to BMO Global Asset Management from the perspective of both investment strategies and product distribution. This acquisition provides BMO Global Asset Management with a broader array of investment capabilities and an established distribution network.