BMO sees $1.3-billion U.K. acquisition as way to expand wealth management arm

Bank of Montreal is preparing to expand its presence across the pond with a $1.3 billion acquisition of U.K.-based F&C Asset Management PLC.

The cash deal, which will diversify and grow BMO’s wealth management arm, is supported by the U.K. company’s board but still requires shareholder and other approvals. It’s expected to close after May 1.

In a conference call with analysts on Tuesday, BMO Financial Group chief executive Bill Downe called the purchase a “logical” step for the bank — which has focused primarily on Canada and the U.S. Midwest.

“Adding a larger fixed income and European component really helps to round out what is a broad global offering,” Downe said.

“I think it’s going to be attractive to both our investor base in the United States and in Canada but… (also) in Asia, Europe and the Middle East.”

Downe said the timing was also right for the deal, as it foresees further growth in the European market.

“We can see the emergence of possible economic growth in Europe sooner, perhaps than some had expected,” he said.

“I don’t think it’s going to be rapid but I think this is an opportune time from a valuation perspective and hopefully, as we close (the deal) and integrate (F&C), we’ll start to see some more economic momentum.”

F&C Asset Management PLC had revealed on Monday that it was in advanced discussions with BMO about a deal, which was announced Tuesday before North American markets opened.

Investors showed little reaction to the news by mid-morning, with shares of BMO down less than one per cent, or 53 cents, at $69.93.

Bank of Montreal is offering 120 British pence, or about C$2.21 at current exchange rates, for each share of F&C — about 28 per cent above Friday’s closing price. BMO said it does not require any equity financing to fund the transaction, which does not include a break fee.

“F&C’s board of directors believes the offer represents an attractive valuation for F&C shareholders and a positive outcome for employees and clients,” said Kieran Poynter, chairman of F&C, in a joint statement with BMO.

The bank expects “modest” savings from the acquisition since F&C has already done a lot to reduce costs in recent years.

“We look forward to welcoming F&C clients and employees to the BMO Global Asset Management family,” said Barry McInerney, co-CEO of BMO Global Asset Management.

Once combined, BMO Global Asset Management and F&C would have US$269 billion of assets under management.

F&C Management traces its history to the launch of the Foreign and Colonial Investment Trust in 1868 and is one of the world’s oldest wealth management firms.

In a note, analyst Michael Goldberg with Desjardins categorized the deal as “modestly positive” for BMO.

Goldberg said the purchase could add an estimated 10 cents to BMO’s annualized earnings per share, which is projected at $6.50 for fiscal 2014.

“F&C has attractive distribution capabilities in the UK and Europe which complement BMO’s distribution in the US and Canada, creating cross-sell and revenue potential in the future,” he said in the note.

“We note that F&C also complements BMO’s agnostic multi-strategy approach aimed at having a broad product shelf for investors to choose from.”

Canadian banks have turned their focus onto expanding their wealth management businesses in the last few years.

Downe told a recent banking conference that BMO was prepared to grow its wealth management business through acquisitions if the right opportunities were available.

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