Bank of Montreal is in talks to buy F&C Asset Management Plc, manager of the oldest U.K. investment fund, for about 697 million pounds ($1.2 billion) in what would be the second-largest takeover in its 196-year history.
Canada's fourth-largest lender by assets made an indicative offer of 120 pence a share, the London-based money manager said today in a statement. Shareholders will also receive the 2 pence annual dividend for 2013, the company said.
"F&C and BMO are in advanced discussions," the money manager said. "F&C has indicated to BMO that it is likely to recommend a firm offer at the offer price."
Bank of Montreal is joining other Canadian lenders in seeking to expand its international asset-management business amid a slowdown in domestic consumer lending. Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are among lenders that have added money managers outside the country in the past four years.
Bank of Montreal acquired London-based Pyrford International Plc in 2007 for C$41 million ($37.1 million). Four years later, it purchased Hong Kong-based Lloyd George Management, which had an office in the U.K., and introduced its BMO Global Asset Management brand.
F&C jumped 24 percent to 116 pence at 3:15 p.m. in London trading, while Bank of Montreal fell 1.3 percent to C$71.08 in Toronto.
"The announcement was put out with our consent in accordance with U.K. regulatory requirements," said Paul Deegan, a Bank of Montreal spokesman, who had no further comment.
The acquisition would be Bank of Montreal's second-largest, following its C$4.1 billion takeover of Milwaukee-based bank Marshall & Ilsley Corp. in July 2011.
"This is a little bit different for BMO, they had been pretty much sticking close to North America," said John Kinsey, who helps oversee about C$1 billion at Caldwell Securities Inc. in Toronto. "It's probably a good move."
Activist investor Edward Bramson stepped down as F&C's chairman five months ago. He sought to boost the fund manager's performance by cutting costs and focusing on traditional business areas such as investment trusts and managing fixed- income assets for insurers. Bramson's Sherborne Investors LLC sold 111 million shares, or about 19 percent of the outstanding stock, in November, data compiled by Bloomberg show.
F&C had about 90.1 billion pounds of assets under management at the end of September, down from 92.3 billion pounds as of June 30. The firm earns more than 90 percent of revenue in mainland Europe and the U.K., the data show. About 96 percent of Bank of Montreal's profit comes from Canada and the U.S., according to financial statements.
Bank of Montreal must now make an offer or cancel the bid by 5 p.m. local time on Feb. 24 to comply with U.K. takeover rules, F&C said in the statement.
The potential offer may flush out other bidders, David McCann, an analyst at Numis Securities Ltd. in London with a hold rating on the stock, said today in a note to clients.
"Anyone who was strategically interested will have likely already been contacted by Bramson before he exited a few months ago and already concluded not to bid," McCann said. "Nonetheless, we believe a counteroffer is not impossible."