UPDATE 2-Bank of Montreal agrees to buy UK's F&C for $1.2 bln

Tue Jan 28, 2014 8:28am EST

* F&C shareholders to get 120p in cash plus 2p dividend

* 12.1 pct shareholder Aviva to vote in favour of deal

* 2nd biggest shareholder says keeps options open

* F&C shares move to slight premium to value of bid

* Shares up 5 percent, rise as high as 123p (Adds shareholder reaction, updates shares)

By Chris Vellacott

LONDON, Jan 28 (Reuters) - Bank of Montreal has reached a deal to buy UK-based F&C Asset Management Plc for 708 million pounds ($1.2 billion) just a day after first announcing an offer, saying the move would help expand its wealth management arm.

The agreement announced on Tuesday marks a major push by Canada's fourth-largest bank to expand its funds division and is in line with moves by some other banks to grow in the relatively less risky fund management sector.

The deal sent shares in F&C, operator of the world's oldest investment trust, up another 5 percent on top of double-digit gains the previous day after the bank first said it had made a preliminary bid.

The stock rose as high as 123 pence, a slim premium to the value of the bid and suggesting some investors believe a better offer could still be in prospect.

The two companies said F&C shareholders will be entitled to 120 pence in cash for each of their shares, plus a dividend of 2p per share for 2013. F&C's largest investor, insurer Aviva Plc which holds 12.1 percent, pledged to vote in favour of the deal.

However, F&C's second-largest shareholder Standard Life Investments gave a cool response, saying the valuation represented a good price from the buyer's standpoint.

"We intend to keep our options open should another suitor for F&C emerge," said David Cumming, global head of equities at Standard Life Investments, which holds 10.2 percent of F&C.

The terms of the offer value F&C at around 0.9 percent of its assets of some 82 billion pounds, which could be relatively cheap given research from consultancy Scorpio Partnership last year found an average price paid for wealth management acquisitions as a proportion of assets of 1.22 percent in 2013, down from 1.98 percent in 2012 and 4.81 percent in 2009.

Yet some analysts said they viewed a rival bid as unlikely.

"We would still argue that a counter-bid is not completely impossible, although probably a fairly remote probability," brokerage Numis said in a note to clients.

TRULY COMPLEMENTARY

The acquisition by Bank of Montreal, which already has some C$184 billion in assets under management, follows a similar path trodden by rival Royal Bank of Canada, which also targeted the UK for an expansion of its wealth arm and bought Bluebay Asset Management in 2010.

Following the 2008 financial crisis, many bankers view wealth management as an effective buffer against more volatile capital markets businesses, because of the tendency for clients to stay relatively loyal to their favourite funds or fund managers, and the low capital requirements of asset management firms.

F&C directors holding shares representing 0.2 percent of the company have committed to the deal and will recommend other shareholders approve the deal.

"The products, geographic presence and cultures of both organisations are truly complementary," said Richard Wilson, chief executive of F&C. "This is clearly a very positive outcome for both our clients and employees."

The London-based fund manager, which traces its roots back to the launch of the Foreign & Colonial Investment Trust in 1868, also released a trading statement saying it had 82.1 billion pounds of assets under management at the end of 2013, down from 90.1 billion three months earlier.

Analysts said the performance was in line with their forecasts.

Bank of Montreal was advised by Barclays on the deal, while F&C was advised by JP Morgan Cazenove. ($1 = 0.6034 British pounds) (Additional reporting by Huw Jones; Editing by Tommy Wilkes and David Holmes)

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