Bloomberg News

Schroders to Buy Cazenove Capital for 424 Million Pounds

March 25, 2013

Schroders Plc (SDR), Europe’s biggest publicly traded money manager, agreed to buy Cazenove Capital Holdings Ltd. for 424 million pounds ($646 million) to expand its private-banking operations.

Schroders will pay 135 pence a share in cash for Cazenove Capital, which is owned by its current and former employees, the London-based fund manager said today in a statement. The deal will add 17.2 billion pounds of assets, increasing Schroders’s funds under management to about 229.2 billion pounds.

The combination brings together two of the City of London’s oldest firms, which can both trace their histories back to the 19th century. With the purchase, Schroders is seeking to counter a decline in revenue at its private banking unit and shore up assets in Britain as Richard Buxton, head of U.K. equities and manager of its 3.5 billion-pound Alpha Plus fund, prepares to leave for Old Mutual Plc (OML) later this year.

“It’s a positive deal for both parties, which will add scale to Schroders’s underperforming private bank,” said Peter Lenardos, a London-based analyst at Royal Bank of Canada with a buy rating on Schroders. “It’s also earnings accretive as Schroders had a lot of surplus capital that was earning minimal returns.”

The stock fell 0.1 percent to 2,090 pence a share in London trading today. The stock has risen 24 percent this year, valuing Schroders at about 20 times earnings.

Private Bank

The purchase adds assets and expertise at a time when sales are declining at Schroders’ private bank. Net revenue fell 17 percent to 94.4 million pounds in 2012 as the division lost assets in Switzerland and lowered management fees amid the European sovereign debt crisis, the firm said this month. The takeover also allows Schroders to reduce costs as margins at the private bank are squeezed, the company said.

“The cost of technology and infrastructure is going up,” Philip Mallinckrodt, head of private banking at Schroders said on a call with journalists today. “The cost of regulation is also going up,” he said. “There are economies of scale in both the front office and back office,” he added.

Andrew Ross, Chief Executive Officer of Cazenove Capital, will become head of U.K. private banking at Schroders and will report to Mallinckrodt, the firms said in the statement.

Both companies sold their more famous investment-banking arms since the millennium -- Schroders’ to Salomon Smith Barney in 2000, which later became part of Citigroup Inc. (C), and Cazenove started a joint venture with JPMorgan Chase & Co (JPM). in 2005, and was later bought by the U.S. bank. Schroders and Cazenove Capital now solely focus on asset management.

Surplus Capital

Schroders has about 1.14 billion pounds of surplus capital and has been expanding through smaller acquisitions since 2008, according to Lenardos. Last year, the firm purchased 25 percent of Axis Asset Management, the fund management unit of India’s third-largest private bank, and bought STW, a U.S.-based fixed- income firm with $11.6 billion of assets.

The fund manager is paying about 15.6 times Cazenove Capital’s earnings, according to Andrew Mitchell, an analyst at Edison Investment Research. The price is 59 percent more than the final closing price Cazenove Capital’s shareholders were last able to trade the stock on the company’s internal trading system in September, the companies said.

“Schroders’ purchase of Cazenove wealth management and investment funds businesses looks a reasonable use of its surplus capital, if not obviously cheap,” he said.

To contact the reporters on this story: Kevin Crowley in London at kcrowley1@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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