Man Group, the British publicly listed hedge fund, announced Monday May 31st 2010, that it will soon acquire its smaller American rival GLG Partners. Man Group plans to pay $1.6 billion in cash and shares to acquire the investment firm. This merger will create a hedge fund giant, responsible for managing $63 billion worldwide.
News and rumors of the merger began in March, when it was reported by Bloomberg News that the Man Group was in preliminary deals talks with GLG Partners and Steve A. Cohen's SAC Capital Advisors. GLG was interested in the merger given its weakened state since going public in 2007 via a reverse merger.
Man Group has recently experienced poor performance at AHL, its largest investment unit. This poor performance has caused Man Group to look into prospects for acquiring another firm in order to diversify revenue streams. It was a logical decision to purchase GLG, given that they focus on a different sector but are still the main competitor to Man Group. The merger not only allows Man Group to grow and diversify, but also eliminates the competition. It is being called a major strategy move on the part of Man Group.
Man Group reaches retail investors in Japan and Australia who are highly interested in its structured products, and institutional investors in areas like Switzerland and the United Kingdom - big buyers of Man's hedge funds. Man Group had, as of March 31, 2010, about $39.1 billion under their management, about half of which was located in the AHL managed futures strategy, which was experiencing trouble.
GLG is well-known for the investment expertise of its individual hedge fund managers who market to very high profile clients. GLG was formed a decade ago and started as a spinoff of Lehman Brothers. At March 31 of this year, GLG had about $23.7 billion in funds under their management. About half of the investments were located in hedge fund strategies that were focused mainly on stocks, while the other half of the funding was put primarily into traditional stock funds.
GLG is headquartered in London, but is currently listed on the New York Stcok Exchange. Man Group plans to pay $4.50 for each of the GLG shares. This rate is a 55% premium to the closing on Friday May 28th of $2.91.
In addition to the cash for shares, GLG's top executives - Pierre Lagrange [5], Emmanuel Roman, and Noam Gottesman [6] - will all receive 1.0856 Man shares for every one of their current GLG share holdings. This rate places the trade value of the GLG share at $3.50, one dollar below the cash price, but with the promise of investment opportunity and even more return via Man Group. Currently these three executives (Lagrange, Roman, Gottesman), in addition to other GLG employees, hold just under half of all GLG shares.
The agreement also states that the new Man shareholders who traded GLG for Man shares must not sell their new shares for at least three years, which will allow time for the newly created Man Group to establish itself firmly in our growing and changing marketplace. After the three years, it is likely that Man Group will become profitable, so it may be a convenient clause in the agreement for the investors as well.
After announcement of the merger, shares went down 7.9 percent due to valuation fears on the part of shareholders. Peter Clarke, Man Group Chief Executive Officer, expects earnings to be neutral for the year which will end on March 31, 2011. Clarke also predicts positive earning by the end of fiscal 2012, so shareholders, both present and future, can expect good things to come from the Man/GLG merger.
Peter Clarke, Man Group's current Chief Executive Officer, was formerly the finance director, but took the reins from Stanley Fink three years ago. Fink was a very high-profile boss, but left shortly before the onset of the current credit crisis. Given the state of the economy, and Clarke's newly found leadership, this deal is landmark for him, and stands to make-or-break both Man Group and the remainder of GLG.
In addition to higher earnings, the merger will also free up about $50 million in potential cost savings. Man Group has announced that they plan to cut the dividend in 2011 to at least $0.22 down from $0.44 in the fiscal year that ended March 31st 2010. Man has stated that is possible, but unlikely, that shares will increase above the $0.22 mark for the 2011 dividend. After Man acquires GLG, their assets are still going to be sitting well below their previous peak of $79.5 billion. This peak was measured before the current financial crisis, and Man Group is now considered in recovery mode. This acquisition will poise them to become the second-largest hedge fund firm behind JP Morgan.
After Man Group completes its acquisition of GLG, the new firm will focus much of its attention on increasing its reach in the United States. The U.S. is the main source of hedge fund investment worldwide, but Man Group and GLG are only presently represented by a tiny portion of these moneys. Roman, one of the GLG executives, is quoted as saying "The U.S. is a huge opportunity and it's something we will be very, very focused on."
With the acquisition of GLG, Man Group stands to become an even more formidable player in the hedge fund game. The newly created Man Group will now manage over $62 billion dollars, and with gains all of the world, will quickly become a rising star of investments. Diversification and expansion to the United States will only further add to the success of Man Group. The only obstacle right now is completing the deal with GLG, and recovering from any valuation fears that investors may be experiencing. Overall, the new Man Group can expect a brand new horizon and hopes for a fresh start in the hedge fund investment arena.
Man Group's acquisition is expected to be finalized and complete by the end of September 2010.