31st Mar 2005 07:01
Rathbone Brothers PLC31 March 2005 31 March 2005 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTOTHE UNITED STATES, CANADA, AUSTRALIA OR JAPAN Rathbones Plc ("Rathbones") Proposed merger of Rathbones and Rensburg plc ("Rensburg") Update Following publication of the detailed terms of the proposed reverse takeover byCarr Sheppards Crosthwaite Ltd of Rensburg, the board of Rathbones continues tobelieve that the terms of its revised pre-conditional offer proposal (the"Revised Offer Proposal") to acquire Rensburg announced on 27 February 2005remain compelling and does not intend to improve them further. The RathbonesDirectors believe the Revised Offer Proposal is attractive for the followingreasons: • the Enlarged Group will be a leading independent UK private client investment and wealth management firm with a strengthened market position; • by utilising Rathbones' existing scaleable operating base, the Enlarged Group can achieve annual pre-tax cost savings of at least £8 million by 31 December 2008 with low execution risk, whilst incurring associated one-off implementation costs of approximately £6 million; • the Enlarged Group would have a strong regulatory capital base, a broad shareholder base combined with a high level of employee share ownership, and be well positioned for the sector's expected growth and further consolidation; • Rensburg and Rathbones are both independent private client focused wealth management firms with little significant geographical overlap, save for both firms' long-established operations in Liverpool; • the Enlarged Group would benefit from increased scale, with up to £11.9 billion of aggregate funds under management (including approximately £1.4 billion in unit trusts) and an enlarged client base; • the merger would further consolidate Rathbones' position as a quoted, independent, FTSE 250 private client investment and wealth management firm with its existing growth prospects enhanced and a compelling investment case; and • the Revised Offer Proposal provides a full and fair valuation of the Rensburg business, allowing Rensburg shareholders to realise part of their investment in cash and retain an enhanced participation in the prospects of the Enlarged Group. Mark Powell, chairman of Rathbone Brothers Plc, said: "Our revised and finalproposal would create an efficient organisation with expected annual pre-taxcost savings of at least £8 million a year achievable by 2008 for a one-offimplementation cost of approximately £6 million. The merged group would enjoythe benefits of being a leading, independent private client fund manager with astrong balance sheet; offer a meaningful equity participation plan and enhancedcareer prospects for its staff; and improved services for clients with a greatergeographical coverage. As an attractive proposition for fund managers andpotential clients, we will be well positioned to grow the enlarged group and tocontinue to participate in the growth and further consolidation in our sector." Rathbones' Revised Offer Proposal As previously announced on 27 February 2005, Rathbones has completed themajority of its due diligence on Rensburg and has received helpful input fromRensburg's senior management team during a series of constructive meetings. As aresult, Rathbones refined and discussed with Rensburg its views on the proposedimplementation plan for the merger of the two companies and the likely costsavings. This included a proposed management structure and opportunities forsenior management career development and equity participation for Rensburgemployees. In addition, the Board of Rathbones believes that integration of thetwo businesses could be successfully achieved with low implementation risk,utilising Rathbones' existing scaleable systems. Furthermore, as first announced on 27 February 2005, Rathbones has submitted aRevised Offer Proposal for the entire issued share capital of Rensburg on thefollowing terms. For each Rensburg share: • a fixed share exchange ratio of 0.74 new Rathbones shares (see note 1); and• 50 pence in cash, by way of a special dividend declared by Rensburg in conjunction with the transaction. On the basis of the closing price of Rathbones shares on 30 March 2005 of 800pence, the Revised Offer Proposal, together with the proposed special dividend,values each Rensburg share at 642 pence. Going forward, the exact value of theRevised Offer Proposal will vary depending on the Rathbones share price. Inaddition to these terms, Rensburg shareholders would retain their right toreceive Rensburg's proposed final dividend of 12 pence per Rensburg share forthe financial year ended 30 November 2004, payable on 8 April 2005. On 25February 2005, the Rensburg board rejected the Revised Offer Proposal. TheRevised Offer Proposal remains subject to certain pre-conditions, including therecommendation of the Rensburg board (see note 2). The Revised Offer Proposal represents: • a premium of 28 per cent. to Rensburg's closing price of 500 pence on 9 December 2004, being the last dealing day prior to the suspension of Rensburg shares on 10 December 2004;• a premium of seven per cent. to Rensburg's closing price of 598.5 pence on 30 March 2005, being the last dealing day prior to this announcement;• 3.4 per cent. of Rensburg's historic funds under management (see note 5); and• 23 times Rensburg's historic earnings per share (see note 6). Background to and reasons for Rathbones' interest in Rensburg Rathbones' corporate strategy Rathbones' strategy over recent years has involved developing its existingoperations and pursuing organic growth, acquisition and recruitmentopportunities where they have been demonstrably earnings enhancing. The ongoingstrength of Rathbones' management team has led to a track record of successfulintegration of acquisitions and teams. The Rathbones Board believes that consolidation of the private client wealthmanagement sector is likely to continue, especially given that changes toservice contracts have made it harder to recruit individual fund managers. TheRathbones Directors believe that attractive returns can be generated forinvestors by being at the forefront of this trend as a result of the increase inthe value of funds under management and the potential to continue to improveoperating returns. Against this background, the Rathbones Board considers that the proposedacquisition of Rensburg represents a significant opportunity to increasesubstantially Rathbones' funds under management and revenues, to improveoperating returns and to provide an even stronger platform to participate infurther sector consolidation. Strengthened market position The market for services to high net worth individuals has continued to expandand further growth is forecast for the medium term. The proposed combinationwith Rensburg would create a leading independent private wealth manager withsignificant scale and national coverage. Rathbones, as enlarged by an acquisition of Rensburg (the "Enlarged Group")would have aggregate funds under management of up to £11.9 billion, of which£1.4 billion would be in its own unit trusts and OEICs, making it one of theleading discretionary private wealth managers in the UK. Excellent cultural and geographical fit The Rathbones Board believes that the cultural and geographical fit between thetwo businesses is excellent. From a cultural perspective, Rathbones and Rensburg are both independent UKlisted companies which are focused on private client wealth management,primarily offering fee paying discretionary and advisory fund management andwealth management services, and operating through a regional network of offices. Outside London, the average size of clients' portfolios and the mix of advisoryand discretionary clients are broadly similar. Fee structures are alsocomplementary. Both Rathbones and Rensburg have successful track records of fundout-performance, a testimony to the calibre of fund managers and the qualityinvestment process within each firm. The Rathbones Board believes that theEnlarged Group represents a significant opportunity to retain and attract thehighest quality fund managers and assimilate best practice in investment processfrom across the two firms. Geographically, Rathbones and Rensburg have complementary networks.Headquartered in London, Rathbones has a strong southern presence with officesin Bristol, Cambridge, Chichester and Winchester together with offices in thenorth west of England and in Edinburgh. It also has tax and trust offices inLondon, Liverpool, Geneva, Jersey and the British Virgin Islands. Although ithas a small office in London, Rensburg's network is predominantly outsidesouthern England, with offices in Belfast, Glasgow, Leeds, Liverpool, Manchesterand Sheffield. Both firms were founded in Liverpool, where the substantiveelement of their respective back and middle offices remain to this day. Rathbones' operations and systems Rathbones' existing operations and systems have proved efficient and robust and,the Rathbones Directors believe, have the capacity to cope with a significantincrease in client numbers and funds under management. It is anticipated that aspart of the integration the majority of Rensburg's clients would be migrated onto Rathbones' systems. Liverpool will be the operational centre for the EnlargedGroup. Enhanced growth prospects The Rathbones Directors believe that the Enlarged Group will be attractive tofund managers and clients. Improved career prospects, equity participation and being part of an independentgroup with a strong balance sheet may attract fund managers who perceive theylack some or all of these benefits in their current positions. The Enlarged Group's continuing independence is, the Rathbones' Directorsbelieve, often regarded positively by many clients and their advisers. Combinedwith the extended geographical spread, the Enlarged Group's ability to attractclients should be increased. Over time, it will also be possible to offerRathbones' tax and trust services to Rensburg's clients and Rensburg's financialplanning services to Rathbones' clients. In recent years Rensburg has increased its proportion of funds managed on adiscretionary basis. The existing strong investment processes in Rathbones andRensburg combined with Rensburg's record of converting clients to discretionarymanagement would allow the Enlarged Group to continue to increase the proportionof funds managed on a discretionary basis. Unit trusts and OEICs have been an area of recent growth for both companiesbuilding on the strong investment performance achieved over the last five years.The Rathbones Directors believe that the Enlarged Group's unit trusts operationshave the potential for considerable further growth. Strengthened management team and enhanced career prospects There will be considerable potential within the Enlarged Group for senior careeropportunities for key management given the expected scale and market position ofthe Enlarged Group's business. Rathbones has a policy of encouraging awards ofRathbones equity to its employees, believing it assists in the long-termdevelopment of the Group by aligning the interests of employees andshareholders. Rathbones staff, Directors, former Directors and their familiescurrently own over 25 per cent. of the Group's equity, with over 80 per cent. ofRathbones staff currently owning equity. The Rathbones Directors intend tocontinue the policy of encouraging awards of Rathbones equity to employees ofthe Enlarged Group. Financial effects The Rathbones Directors expect that the acquisition of Rensburg will result inannual pre-tax cost savings of at least £8 million being achieved by the yearending 31 December 2008, with a significant proportion expected to be achievedin the year ending 31 December 2007. Implementation costs of approximately £6million in total are expected to be incurred, primarily in 2005 and 2006. Thesecost savings are anticipated to arise from bringing subcontracted Rensburgoperations on to Rathbones' existing systems, limited reductions in staffnumbers, and removing duplication of certain head office and PLC costs. The Rathbones Directors believe that the Revised Offer Proposal will be earningsenhancing in the first full financial year following completion of theacquisition and materially earnings enhancing thereafter (see note 7). The abovestatement excludes the benefit arising from potential revenue growthopportunities. The Rathbones Directors believe that these opportunities existand that the Enlarged Group will be able to take advantage of them to growrevenue further over the medium term. As stated in Rathbones' preliminary results announcement of 2 March 2005,Rathbones continues to incur professional advisory costs in connection with itsproposed offer for Rensburg. In the event that an offer for Rensburg is made andbecomes unconditional, it is anticipated that the majority of Rathbones'professional advisory costs (including stamp duty and those costs which are onlypayable in the event of an offer being successful) of £5.3 million will becapitalised. Rensburg's own professional advisory costs will be in addition tothese costs. Under the Revised Offer Proposal Rensburg shareholders will have the opportunityto retain their interest in a UK independent, listed private client fundmanagement company with a significant free float, as well as being able torealise part of their investment in cash. Timing Rathbones has agreed with the Takeover Panel to either announce by 5pm on Monday11 April 2005 a firm intention to make an offer for Rensburg under Rule 2.5 ofthe Code or announce that it does not intend to make an offer for Rensburg. Enquiries: Rathbones Mark Powell, Chairman Tel: 020 7399 0000Andy Pomfret, Chief Executive Financial Dynamics(Financial PR advisers to Rathbones)Andrew WaterworthEd Gascoigne-Pees Tel: 020 7831 3113 Dresdner Kleinwort Wasserstein Limited(Joint financial adviser to Rathbones)Christopher Baird Tel: 020 7623 8000 Hawkpoint Partners Limited(Joint financial adviser to Rathbones)Charles Williams Tel: 020 7665 4500 Bridgewell Securities Limited(Corporate Broker to Rathbones)Ben Money-Coutts Tel: 020 7003 3000 This press release does not constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction. The availability of any offer to persons outside the United Kingdom, if made, may be affected by the laws of other jurisdictions. Such persons would need to inform themselves about and observe any applicable requirements of those jurisdictions. Unless Rathbones determines otherwise, any offer will not be made, directly or indirectly, in or into, or by use of the mails or by any means or instrumentality (including, without limitation, by means of telephone, facsimile, telex, internet or other forms of electronic communication) of interstate or foreign commerce of, or by any facilities of a national securities exchange of, the United States, nor will any offer be made in or into Canada, Australia or Japan and any offer will not be capable of acceptance by any such use, means, instrumentality or facility or from within the United States, Canada, Australia or Japan. Accordingly, copies of this announcement and any offer announcement or documents are not being, and must not be, mailed or otherwise forwarded, distributed or sent, in whole or in part, in, into or from, the United States, Canada, Australia or Japan. Securities may not be offered or sold in the United States absent registration under the US Securities Act of 1933 or an exemption from registration. This announcement contains a number of forward-looking statements relating to Rathbones with respect to, among others, the following: financial condition; results of operation; the businesses of Rathbones; future benefits of the transaction; and management plans and objectives. Rathbones considers any statements that are not historical facts as "forward-looking statements". They involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Important factors that could cause actual results to differ materially from stimates or forecasts contained in the forward-looking statements include, among others, the following possibilities: future revenues are lower than expected; costs or difficulties relating to the integration of the businesses of Rathbones, or of other future acquisitions, are greater than expected; expected cost savings from the transaction or from other future acquisitions are not fully realised or realised within the expected time frame; competitive pressures in the industry increase; general economic conditions or conditions affecting the relevant industries, whether internationally or in the places Rathbones does business are less favourable than expected, and/or conditions in the securities market are less favourable than expected. Dresdner Kleinwort Wasserstein Limited and Hawkpoint Partners Limited, which areauthorised and regulated in the United Kingdom by the Financial ServicesAuthority, are acting as joint financial advisers to Rathbones Plc and for noone else in connection with the possible offer and other matters describedherein and will not be responsible to anyone other than Rathbones Plc forproviding the protections afforded to customers of Dresdner KleinwortWasserstein Limited or Hawkpoint Partners Limited or for giving advice inrelation to the possible offer or in relation to the contents of thisannouncement or any other matter described in this announcement. Bridgewell Securities Limited which is regulated in the UK by the FinancialServices Authority, is acting exclusively for Rathbones and no one else inconnection with the possible offer and other matters described herein and willnot be responsible to anyone other than Rathbones for providing the protectionsafforded to customers of Bridgewell Securities Limited or for giving advice inrelation to the possible offer or in relation to the contents of thisannouncement or any other matter described in this announcement. Note to editors: 1. Fractions of new Rathbones shares will not be allotted or issued. 2. Rathbones' Revised Offer Proposal has been made on the basis of a number of pre-conditions and assumptions. These include the recommendation of the Rensburg board and satisfactory completion of due diligence. The Board of Rathbones reserves the right to reconsider the requirement for any of these pre-conditions. There is no certainty that any offer will be made. 3. Rathbones reserves the right to make any eventual offer at a price of less than 610 pence per Rensburg share (being Rathbones' proposal of 14 January 2005) either (i) if the Board of Rensburg recommends an offer by Rathbones at a lower price or (ii) if another offeror announces a firm intention to make an offer at a lower price and to vary the nature and any mix of the consideration depending upon, inter alia, its review of the information to be supplied by Rensburg and any discussions which are held. 4. If made, Rathbones' offer for Rensburg would be subject to Rathbones shareholder approval and would include customary terms and conditions for a UK public offer. 5. Based on Rensburg's Group funds under management of £4.18 billion as at 30 November 2004 (as disclosed in Rensburg's preliminary announcement for the year ended 30 November 2004 made on 15 February 2005) and on 22,089,151 Rensburg ordinary shares currently in issue (as disclosed in the listing particulars of Rensburg posted in connection with the proposed reverse takeover by Carr Sheppards Crosthwaite Ltd of Rensburg). 6. Based on Rensburg's 2004 basic earnings per share (before goodwill amortisation and exceptional items) of 27.9p (as disclosed in Rensburg's preliminary announcement for the year ended 30 November 2004 made on 15 February 2005). 7. This statement should not be interpreted to mean that the future earnings per share of Rathbones following the proposed acquisition will necessarily match or exceed the historical earnings per share of Rathbones and no forecast is intended or implied. 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