Pound Slides; Man Group to Buy GLG

Arthi Gupta, Mayank Mehta and Sanjay Barot
17 May, 2010
New York City

U.K. stocks gain but a slowdown in U.K. house price growth raises concerns about the health of the economy. The pound hits a 13-month low against the dollar. Prudential launches $21 billion rights issue. Man Group agrees to acquire GLG for $1.6 billion.

[R]4:30 PM London, 11:30 AM New York – U.K. stocks gain but a slowdown in U.K. house price growth raises concerns about the health of the economy. The pound hits a 13-month low against the dollar. Prudential launches $21 billion rights issue. Man Group agrees to acquire GLG for $1.6 billion.[/R]

U.K. stocks gains but a slowdown in UK house price growth raises concern about the health of the domestic economy.

The pound fell to 13-month low against the dollar after U.K. Prime Minister David Cameron said the government discovered “very bad” spending decisions by the previous administration.

The pound stood at $1.4432, down 1% on the day earlier to $1.4253, its lowest since late March 2009. The pound lost around 0.3% to 85.31 pence per euro. Sterling depreciated 0.6% to 85.51 pence per euro.

U.K. Chancellor George Osborne has said that the government will hold its emergency budget on Tuesday, June 22, forty-two days after the coalition was formed. The government will also outline plans for spending cuts of £6 billion for 2010 next Monday.

The average asking price for a home in the United Kingdom rose 0.7% month-over-month in May, property web site Rightmove said on Monday, slowing from the 2.6% gain in April. The average asking price stood at £237,134 in May, up from £235,512 a month ago.

Data from the Confederation of British Industry showed UK factory orders unexpectedly showed their strongest performance since August 2008 this month, helped by a surge in export orders. The gauge rose to minus 18 from minus 36 in April, the nation’s biggest business lobby said in London today.

Allied Healthcare International Inc. said Sunday its U.K. unit, Allied Healthcare Group has acquired a shareholding in a group of businesses commonly known as Homecare Independent Living Group. Allied expects this acquisition to be earnings enhancing.

Prudential Launches $21 Billion Rights Issue

UK-based insurer Prudential Plc announced further details of its proposed combination with American International Group Inc.''s main Asian life insurance unit American International Assurance Co. Ltd. or AIA Group, including the terms of its fully underwritten rights issue to raise approximately £14.5 billion or about $20.9 billion.

It was on March 1 that the company reached an agreement with AIG on terms for Prudential to acquire AIA Group. AIG has agreed to sell AIA to Prudential for about $35.5 billion in cash and stock. Prudential has said it will raise the cash component for the deal through a $20 billion rights issue and $5 billion in senior debt.

On May 5, Prudential said it was forced to delay the pricing and launch of the $20 billion rights issue after the Financial Services Authority or FSA raised concerns over whether the company would have enough capital on completion of the acquisition.

Prudential today said the rights issue will be made on the basis of 11 rights issue shares for every 2 existing shares at an issue price of 104 pence per share.

The company noted that the issue price represents a 39.3% discount to the theoretical ex-rights price based on the closing price of 542.5 pence on May 14 and an 80.8% discount to that closing price.

According to the company, the enlarged group targets annualized run rate new business profit revenue synergies of $800 million pre-tax and cost synergies of $370 million pre-tax during 2013. Prudential targets to achieve IFRS pre-tax operating profit for Asia combined business of at least £3.26 billion in 2013 and to more than double combined Asian EEV pre-tax new business profit to at least £2.8 billion in 2013.

The company also aims remittance of at least $1 billion per annum from the AIA Group in 2011 and onwards and focus on delivery of a growing dividend for the Enlarged Group, based on medium term cover of two times post-tax operating earnings.

Man Group to Acquire GLG for $1.6 Billion

Hedge fund managers Man Group PLC and GLG Partners, Inc. said they have reached an agreement, whereby Man will acquire GLG in a deal valued at about $1.6 billion to create an alternative investment manager with approximately $63 billion of funds under management.

The proposed acquisition would be carried out through two concurrent transactions. According to the cash merger deal, Man Group will pay a consideration of $4.50 per share to the stockholders of GLG, representing a premium of around 55% to GLG’s Friday’s closing price.

Under the terms of the share exchange agreement, Man will get the entire common stock held by GLG Principals, who in turn will receive shares at the rate of 1.0856 new Man shares for every GLG share. The exchange ratio represents a value of $3.50 per GLG share based on Friday’s closing prices of GLG and Man stock.

The companies expect the acquisition to close in the third quarter of 2010, and subsequently GLG would function as a wholly owned subsidiary of Man. The principals will enter into lock-up agreements at closing of the merger, in respect of their new Man shares received in the transaction for a period of 3 years.

Man Group expects the purchase to result in annual potential cost savings of $50 million, about one third in fiscal 2011 and the balance savings in the first half of 2012. Man also anticipates the acquisition to be neutral to earnings in fiscal 2011 and accretive in 2012.

Moelis & Company served as the financial advisor to the Special Committee of GLG’s Board of Directors, while Goldman Sachs was the financial advisor to GLG. Perella Weinberg Partners acted as advisor to Man.

In light of the acquisition, the Man Board intends to recommend a dividend of at least 22 cents per Man share in total for the year ending 31 March 2011. Dividend for the year ended 31 March 2010 was left unchanged, with final dividend recommendation of 24.8 cents per share, giving a total dividend of 44 cents per share.

GLG closed Friday’s regular trading hours at $2.91 on the NYSE.

EMG is currently trading at 206.10 pence, down 15.40 pence or 6.95%, on the London Stock Exchange.

In London FTSE 100 Index closed higher 6.52 or 0.12% to 5,269.37 and the pound edged lower to close at $1.443 and to close at €1.168.

Gainers & Losers

Big Yellow Group PLC fell 0.4% to 306.70 pence after the self-storage firm said fiscal year 2010 revenues fell 1% to £58 million from £58.5 million a year ago. Net profit for the year was £10.2 million or 8.03 pence per diluted share compared to net loss of £72.6 million or 62.34 pence per share a year ago.

BP Plc, the oil and gas company rose 2.4% to 542.90 pence.

BHP Billiton plc, the diversified natural resources company fell 0.5% to 1,905.00 pence.

Carluccio''s Plc rose 0.2% to 93.00 pence after the Italian restaurant and food chain said first half revenues rose 7.5% to £37.1 million from £34.5 million a year ago. Net profit for the first half rose 11.5% to £1.84 million or 3.2 pence per diluted share compared to net profit of £1.65 million or 2.9 pence per share a year ago.

EnQuest PLC, the North Sea oil group rose 0.4% to 94.40 pence.

ITE Group plc dropped 4.3% to 146.40 pence after the organizers of international trade exhibitions and conferences said first half revenues fell 9% to £39.2 million from £43.2 million a year ago. Net profit for the first half fell 49.4% to £4.1 million or 1.7 pence per diluted share compared to net profit of £8.1 million or 3.4 pence per share a year ago.

Kier Group plc, the contractor and housebuilder fell 0.9% to 1,071.00 pence.

Man Group Plc, the hedge fund manager fell 5.6% to 208.90 pence.

MITIE Group PLC climbed 3.6% to 238.40 pence after the maintenance firm said fiscal year 2010 revenues rose 13% to £1.72 billion from £1.52 billion a year ago. Net profit for the year rose 7.5% to £57.1 million or 16.6 pence per diluted share compared to net profit of £53.1 million or 16.5 pence per share a year ago.

Prudential Financial, Inc., the life insurer fell 2.2% to 60.46 pence.

RM plc closed unchanged at 181.75 pence after the educational software and services provider said first half revenues rose 10% to £156.4 million from £141.9 million a year ago. Net profit for the first half rose 63.5% to £314,000 or 0.3 pence per diluted share compared to net profit of £192,000 or 0.2 pence per share a year ago.

Robert Wiseman Dairies PLC fell 0.8% to 479.00 pence. The supplier of milk said fiscal year 2010 revenues rose 4.5% to £886.2 million from £847.7 million a year ago. Net profit for the year rose 442% to £35.8 million or 49.20 pence per diluted share compared to net profit of £6.6 million or 9.09 pence per share a year ago.

Travis Perkins plc, the builder merchant and home improvement retailer rose 0.9% to 823.00 pence.

Tullow Oil plc, the oil and gas company rose 0.1% to 1,110.00 pence.

Wichford P.L.C fell 1.1% to 8.90 pence after the property investment company said first half revenues fell 2% to £21.9 million from £22.4 million a year ago. Net profit for the first half was £18.0 million or 1.69 pence per diluted share compared to net loss of £76.2 million or 7.17 pence per share a year ago.