Friends Provident's subsidiary ISIS Asset Management is to merge with competitor Foreign & Colonial to create the UK's fourth biggest asset manager by funds under management.
FP will fund its £250m cash payment through an institutional placing of about 172 million new FP shares on the market, equivalent to about 10% of the existing shareholder equity. FP shares are down 8p to 137.5p so far today.
Shareholders in FP will benefit even if the deal does not go through because of a clause allowing it to retain the proceeds of the placing being carried out to fund the cash element of its deal with Eureko.
The new company will become a major player in retail and institutional asset management, with an estimated £120bn worth of funds under management, putting it behind Barclays, Merrill Lynch and Prudential as a manger of funds for UK investors.
The enlarged firm is predicted to become a top ten European pension asset manager and a top three UK investment trust manager.
It will be the largest active manager of Dutch pension assets, the largest manager of Portugese institutional and retail assets and the fifth largest manager of pension assets in Ireland, according to claims made in documents outlining the deal.
Merging ISIS and F&C will create synergies of £33m by the end of 2006, when the deal is forecast to become profit generating.
If approved by shareholders in both companies, the merger should be completed by October this year.
This is the second major consolidation deal involving FP’s asset management business since ISIS was created by the £240m acquisition in April 2002 of Royal & Sun Alliance’s former asset management business, which was subsequently merged into FP’s Friends Ivory & Sime asset management subsidiary.
That merger of businesses resulted in a number of hirings and firings of asset managers as replicated roles were reduced.
Jason Hollands, ISIS director head of communications and strategy, says IFAs should not expect another wave of fund manager rationalisation as occurred last year, when some 50 funds were reduced to about 30.
"There's simply not that overlap," he says of the deal now on the table.
While ISIS is strong in the UK retail market, F&C has a strong presence in the European institutional market, especially pensions.
So, assuming the deal goes through, ISIS' platform will form the basis of UK retail business going forward, while F&C's likewise will form the basis of European business.
UK IFAs meanwhile should expect business as usual, whether that involves equities funds, Baronsmead VCTs or the Stewardship range, Hollands says.
The big change, and one that will be explained further in due course, is the one involving branding.
Hollands admits considerable effort has gone into developing the ISIS brand over the past couple of years.
However, in this matter the ISIS name was competing against the F&C name, which has been around far longer, and is far more recognised across Europe.
With the goal of creating a pan-European asset manager at the core of today's announcement, it is further reason to use the F&C name to describe the whole new group being created, Hollands says.
"It's right to have one brand and get behind it."
"We bring brand-building skills to the party," he adds.
It is too early, however, to say how the new branding campaign will proceed as today has also seen the appointment of directors to new proposed positions in the new single company.
Hollands believes those responsible will start meeting next week, once the changes have been explained to staff at both companies, to begin the task of building up a campaign to promote the new use of the F&C brand.
In the meantime, ISIS will focus on emailing, telephoning and writing to intermediaries across the UK to advise of the merger deal and explain how the relationship with ISIS will be maintained over the next few months.IFAonline
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