By Tommy Wilkes
LONDON (Reuters) - Canadian bank BMO Financial Group has offered to buy UK fund manager F&C Asset Management , operator of the world's oldest investment trust, for 697 million pounds ($1.2 billion) in cash in a move to beef up its wealth management arm.
F&C, which manages over $148 billion of assets, said in a statement on Monday that BMO had made an indicative offer of 120 pence per share, a 28 percent premium to its closing share price on Friday.
The fund manager, which can trace its roots back to the launch of the Foreign & Colonial Investment Trust in 1868, said it has indicated to BMO that it is likely to recommend the offer, and talks were at an advanced stage.
News of the approach sent shares in F&C soaring by as much as 27 percent to 119 pence, just below BMO's offer.
F&C shareholders would also be entitled to receive a 2 pence per share dividend for the 2013 financial year.
For BMO, formerly known as Bank of Montreal and one of Canada's five largest banks, any deal would more than double the size of its global fund management arm, which runs more than $132 billion in assets.
BMO is one of a handful of Canadian banks that have sought to expand their wealth management arms in the wake of the financial crisis, attracted by the industry's fee-based revenue and relatively low capital requirements. Canadian banks are also dealing with slowing growth in consumer lending at home, and see wealth management as a way to maintain profits.
The deal would not be the first by a Canadian bank for a British fund manager. Back in 2007 BMO bought London-based Pyrford International for an undisclosed sum, while Royal Bank of Canada swooped on BlueBay Asset Management in 2010.
Paul Deegan BMO's head of government and public relations, said the bank had no further comment on the F&C talks.
Shore Capital analyst Owen Jones said the offer, at about 13 times F&C's full-year earnings, or 0.9 percent of its assets under management, was "fair" and in line with the sector.
While rival managers like Aberdeen Asset Management and Jupiter Fund Management tend to trade at higher earnings multiples, more than half of F&C's assets are run on behalf of legacy pension fund clients and attract lower fees.
Analysts at Numis said the price did not look like a "significant premium", however.
"We would therefore see 122p as very much a floor value (given the board's recommendation), with some upside potential if other interested parties were to emerge, given the price," they said in a note to clients.
F&C has struggled in recent years with client outflows and relatively weak earnings compared with some rivals, who have expanded more aggressively into higher-margin products.
That underperformance prompted activist investor Edward Bramson to take control of the group in a 2011 boardroom coup. Bramson stepped down as chairman in August, believing his turnaround strategy was fulfilled.
BMO has until February 24 to announce whether or not it intends to make a formal offer for F&C.
(Additional reporting by Euan Rocha and Cameron French in Toronto; Editing by Erica Billingham and Greg Mahlich)