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Bank of Montreal Inks F&C Takeover Deal

LONDON ( The Deal) -- Proving once again that love and marriage are not just for the young, Canada's oldest bank, Bank of Montreal (BMO - Get Report), announced an agreement Tuesday, Jan. 28, to buy F&C Asset Management, manager of the City of London's oldest investment fund.

BMO Global Asset Management (Europe) Ltd., the bank's U.K. subsidiary, will offer 120 pence a share for the British target, valuing its share capital at £708 million ($1.17 billion), a premium of 28.3% to F&C's closing valuation on Jan. 24.

The buyer said the acquisition would almost exactly double BMO's assets under management to $269 million.

"With an established pedigree in fixed income investment and broad equity and property capabilities across its European platform, F&C advances BMO's capabilities by adding scope and scale to our well-established portfolio of wealth management businesses," said BMO Financial Group CEO William Downe in a statement.

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However, the offer received a cool reception from one of F&C's largest institutional shareholders, Standard Life Investments Ltd., which has a 10.2% stake in the company, and hinted it believed a higher price could be forthcoming.

"The price agreed represents an attractive valuation from the standpoint of the Canadian Bank," said Standard Life global head of equities David Cumming in a statement. "Consequently we intend to keep our options open should another suitor for F&C emerge."

However, the share price did not immediately appear to reflect Standard Life's concerns. By lunchtime Tuesday, F&C was trading at 122.5 pence, up 5.2% from Monday's close, but only slightly more thanthe 122 pence a share investors will receive once F&C's 2 pence-per-share final 2013 dividend is taken into account. The companies disclosed advanced talks about an offer for F&C only on Monday.

Aviva Investors Global Services Ltd. which owns 12.11% of F&C's shares, has signed a binding agreement to vote in favor of the sale to BMO, as have a number of F&C's directors, who between them own 0.2%. The selling directors include Chairman Kieran Poynter and CEO Richard Wilson.

BMO said it would fund the purchase in cash from its own resources, adding the business would be "modestly accretive" to its earnings per share in the first year, excluding one-time costs and the amortization of intangible assets. The deal offered an estimated internal rate of return of about 15%, it said.

It said it was acquiring F&C at an enterprise value £852 million, or about 9.4 times F&C's Ebitda of about £90 million for the 12 months ended June 30. It defined enterprise value as the equity value of £708 million, net debt of £87.4 million, a pension deficit of £23 million, plus a further £33.8 million for F&C's "total financial liability relating to the other LLP members of F&C REIT."

F&C on Tuesday also said assets under management were £82.1 billion at year-end, compared with £90.1 billion at the end of September. Much of the decline was related to the previously announced withdrawal of Dutch pension fund Achmea's risk assets during the period, reflecting F&C's long-standing over-reliance on a few strategic partner funds.

F&C, which traces its history to the 1868 launch of the world's first publicly listed pooled investment vehicle, Foreign & Colonial Investment Trust, embarked on a £48 million cost-cutting program in 2011 after New York activist investor Edward Bramson seized control of the company. Bramson sold out and stepped down as chairman last summer. But the London company said Tuesday that the program was on track.

It said the new owner would provide significant benefits for F&C, including the strength of the balance sheet behind the business, and greater investment clout.

For its part, BMO said F&C would be the "centerpiece" of its European operations, adding scale, resources and capabilities to its existing global investment platform. It would also provide cross-selling potential into wealth markets in the U.K. and the rest of Europe.

BMO, which has assets under management of $133 billion, will acquire F&C by means of a scheme of arrangement under London's Takeover Code and will eventually delist it from the stock exchange.

BMO is advised by Matthew Smith and Adam Sinclair of Barclays plc and Brad Hardie and Ariel Walsh of BMO Capital Markets. John Mayne, Dwayne Lysaght and Mike Collar of JPMorgan Cazenove Ltd. are financial adviser and broker to F&C.

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