DEALTALK-Quickfire New Star buy could bag a bargain

(For more Reuters DEALTALKS, click [DEALTALK/])

By Laurence Fletcher and Joel Dimmock

LONDON, Dec 10 (Reuters) - New Star Asset Management NSAM.L could find a buyer for its business even before its investors vote on a debt-for-equity swap that will see its banks take hold of the troubled fund manager.

Investors may find themselves asked to support a takeover thrashed out over the Christmas break at a January shareholder meeting, sources close to New Star said.

A deal may value the group at around 200 million pounds ($297.5 million), or about 8 pence per share, said Jason Streets at Evolution Securities.

New Star's founder and Chief Executive John Duffield, a well-known figure in London financial circles, is set to walk away once there is a deal with creditor banks, according to a source close to the firm. New Star, which took on debt last year to fund a payout to shareholders, agreed a debt for equity swap with banks this month, whereby a syndicate owed about 240 million pounds will end up owning some 75 percent of New Star.

On Tuesday, the company said it had received a number of expressions of interest from others and that it might put itself up for sale or consider other options for its future. UBS is advising the company.

Aberdeen Asset Management (ADN.L) and unlisted Neptune Investment Management are possible buyers. But Jupiter, another fund firm set up by Duffield, is not looking at a bid for New Star, a source close to the company told Reuters.

Evolution's Streets said New Star could be worth 200 million pounds -- 150 million for the UK mutual funds and 50 million for the hedge fund and institutional arm.

New Star's shares have slumped from nearly 500 pence last May to about 2 pence on Friday. And on Thursday they temporarily suspended dealings in its 29 million pound Heart of Africa fund.

"The banks probably want to dispose of it as soon as they can and get their cash back," said Gurjit Kambo at Numis.

New Star still has respectable assets under management of 13.9 billion pounds, despite recent outflows.

Fund firms may sell for more than 5 percent of assets under management at the top of the equity markets, but bear markets can throw up real bargains.

Insight Investment bought Rothschild Asset Management in December 2002, near the trough of the last bear market, for a mere 0.6 percent of assets -- a move that later looked shrewd given the upturn in markets in March 2003.

Aberdeen, which in January sounded wary of big acquisitions, has altered its tone as market conditions have changed and would not rule itself out of the running for New Star.

"In this market environment we view Aberdeen as a consolidator rather than being consolidated," a spokesman said.

Neptune has indicated its interest in part or all of New Star, although with a war chest of just 10 million pounds it may only be in a position to take part of the assets.

A management buyout may be unlikely given limited access to debt in current markets and the lack of synergies in any management-backed deal. (Additional reporting by Quentin Webb; Editing by Douwe Miedema and Sharon Lindores)