* Schroders, Cazenove agree 424 mln stg deal
* Deal valued at around 2.5 pct of Cazenove assets under mgt
* Cazenove manages 18.7 bln stg
* Will boost Schroders private banking assets
* Schroders shares up 2.3 pct
By Tommy Wilkes and Kate Holton
LONDON, March 25 Fund manager Schroders Plc
is to pay 424 million pounds ($646 million) for smaller
rival Cazenove Capital, as it moves to bulk up its private
banking arm running money for wealthy clients.
The agreed transaction, announced on Monday, is the largest
in Schroders' over 200-year history and means two of London's
oldest names coming together under the same roof.
Rising regulatory costs have squeezed margins in the
business of managing money for well-heeled clients and Schroders
said Cazenove will give it more scale to compete, as well as
offering scope to lower costs.
Pretax profit in Schroders' private banking unit halved to
11.8 million pounds last year.
If the tie up goes ahead, Schroders will increase its assets
under management in private banking by about three-quarters to
more than 28 billion pounds, the firm said. Schroders' total
assets under management will increase by nearly 10 percent to
Under the deal's terms, Cazenove, which was established in
1823 and has reportedly counted Queen Elizabeth II among its
clients, will keep its name.
"In combining with Schroders, we will create a pre-eminent
independent private banking and charities business in the UK,
with a broader capability covering investment management,
financial planning, deposit-taking and lending services," Andrew
Ross, chief executive at Cazenove, said.
Cazenove's fund management arm was split from the wider
group after JP Morgan formed a joint venture with
Cazenove's UK investment banking business in 2005.
"We believe strategically there is a good fit between the
two UK wealth management businesses and it will provide a useful
complement to the UK funds business," analyst David McCann at
brokerage Numis said in a note.
Credit Suisse analyst Gurjit Kambo said the valuation - at
around 2.5 percent of Cazenove's assets under management - was
fair and was in line with what the market was expecting, after
the two companies said on Friday they were in talks.
Aside from small add-on deals, the British asset management
industry has not seen a large acquisition since Henderson Global
Investors scooped up troubled rival Gartmore in early
2011 for around 2.3 percent of assets.
Kambo said it was too early to predict the start of a wider
consolidation despite the industry's fragmentation, since the
size of Schroders' cash reserves - at 581 million pounds after
the deal - made its ability to finance buys of this size unique.
Shares in Schroders were up 2.3 percent by 1015 GMT, against
a 0.8 percent rise in the FTSE 100.
Schroders said it expects to save between 12 million pounds
and 15 million in pretax costs per year from the deal.
These costs will largely come from economies of scale in UK
funds distribution and infrastructure, the firm said, and not
from investment management.
As well as wealth management, Cazenove also manages 5.8
billion pounds in investment funds. Schroders said Cazenove's
portfolio managers in UK and European equities, fixed income,
multi-manager and absolute return strategies will join the firm.
"We are not looking for any cost synergies in the front
office of our wealth management business or investment funds,"
Michael Dobson, chief executive officer at Schroders, said on a
conference call with journalists after the announcement.
Clients will see no change in the people looking after them
following the deal, Ross at Cazenove said.
Agreement of the deal comes two weeks after Schroders'
high-profile head of UK equities, Richard Buxton, resigned,
raising the possibility private investors in his fund will
follow him when he leaves in June.
Schroders said under the agreed deal Cazenove shareholders
would receive 135 pence in cash per ordinary share. They have
until April 19 to decide on the offer.
"I am confident the transaction will create long-term value
and benefits for clients, shareholders and employees," Dobson