Schroders in £424m deal to buy rival Cazenove

FUND manager Schroders is to buy smaller rival Cazenove Capital, which reportedly includes The Queen among its clients, for £424m.

The deal, which was announced yesterday, is the largest in Schroders’ 200-year history and means two of London’s oldest names will come together under the same roof.

Rising regulatory costs have squeezed margins in the business of managing money for well-heeled clients.

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Schroders said Cazenove will give it more scale to compete, as well as offering scope to lower costs.

Pre-tax profit in Schroders’ private banking unit halved to £11.8m 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 £28bn, the firm said.

Schroders’ total assets under management will increase by nearly 10 per cent to £230.7bn.

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Under the deal’s terms, Cazenove, which was established in the 19th century, 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, the chief executive at Cazenove, said yesterday.

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.

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Credit Suisse analyst Gurjit Kambo said the valuation – at around 2.5 per cent of Cazenove’s assets under management – was fair and was in line with what the market was expecting, after the two companies revealed they were in talks last week.

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 per cent 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 £581m after the deal – made its ability to finance buys of this size unique.

Schroders said it expects to save between £12m and £15m in pre-tax costs per year from the deal.

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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 £5.8bn 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, Mr Ross at Cazenove said.

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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 135p 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,” Mr Dobson said.

The origins of Cazenove can be traced back to the early Huguenot financiers who left France in the late seventeenth century.

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In 1819, Phillip Cazenove joined the business of his brother-in-law John Menet and in 1823 they became partners and established Cazenove. By the 1940s the business had become one of London’s preeminent stockbroking partnerships and by 1945 had begun investing on behalf of pension funds and private individuals.

Schroders can trace its roots back to 1804, when Johann Heinrich Schröder becomes a partner in J. F. Schröder & Co. The company prospered by focusing on the finance of trade between America and Europe, particularly in the tobacco, cotton and sugar markets.

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