REG - Rathbones Group PLC Investec PLC - Rathbones' Combination with Investec W&I UK

InvestecAnnouncement

04/04/2023 07:00

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RNS Number : 2364V  Rathbones Group PLC  04 April 2023

FOR IMMEDIATE RELEASE

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE
A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION

THIS IS AN ANNOUNCEMENT AND NOT A CIRCULAR OR PROSPECTUS OR EQUIVALENT
DOCUMENT AND INVESTORS AND PROSPECTIVE INVESTORS SHOULD NOT MAKE ANY
INVESTMENT DECISION ON THE BASIS OF ITS CONTENTS. A COMBINED CLASS 1 CIRCULAR
AND PROSPECTUS IN RELATION TO THE COMBINATION DESCRIBED IN THIS ANNOUNCEMENT
WILL BE PUBLISHED IN DUE COURSE

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

4 April 2023

Rathbones announces combination with Investec Wealth & Investment UK

to create the UK's leading discretionary wealth manager

 

The Boards and Management of Rathbones Group Plc ("Rathbones" or the
"Company") and Investec PLC ("Investec Group") are pleased to announce that
they have entered into a definitive agreement regarding an all-share
combination of Rathbones with Investec Wealth & Investment Limited
("Investec W&I UK") to create the UK's leading discretionary wealth
manager (the "Enlarged Rathbones Group") (the "Combination").

 

The Combination brings together two trusted and prestigious UK wealth
management businesses with closely aligned cultures and operating models and a
shared commitment to client-centric values and sustainable growth. The
Combination represents a significant value creation opportunity for both
Rathbones and Investec Group shareholders.

 

Under the terms of the Combination, new Rathbones shares will be issued in
exchange for 100% of Investec W&I UK's share capital. The Enlarged
Rathbones Group will remain an independent premium-listed company operating
under the Rathbones brand with Investec Group as a long-term, strategic
shareholder. Following completion, Investec Group will have an economic
interest in Rathbones' enlarged share capital of 41.25% with Investec Group's
voting rights limited to 29.9% of Rathbones' enlarged total voting rights.
Existing Rathbones shareholders will have an economic interest of 58.75% and
voting rights of 70.1%. The terms of the Combination imply an equity value of
approximately £839 million for Investec W&I UK.

 

The Investec W&I UK transaction perimeter includes Investec Group's wealth
and investment businesses in the UK and Channel Islands but excludes Investec
Bank (Switzerland) AG and Investec Wealth & Investment International (Pty)
Ltd, both of which will remain wholly-owned subsidiaries of Investec Group.

 

The Combination constitutes a Class 1 acquisition for Rathbones for the
purpose of the Listing Rules ("Listing Rules") and is therefore subject to,
among other things, shareholder and regulatory approvals.

 

Key highlights

 

The Boards of Rathbones and Investec Group believe that the Combination will
unlock significant scale benefits through the creation of the UK's leading
discretionary wealth manager with approximately £100 billion of funds under
management and administration ("FUMA").

 

In particular, the Boards of Rathbones and Investec Group believe that the
Combination will:

·      enhance and enrich the client proposition across investment
management, financial planning, fund management and banking services;

·      create a leading multi-channel distribution capability across
private clients, intermediaries and charities, through an expanded network in
23 locations across the UK and Channel Islands;

·      attract and retain the best industry talent through a leading
employee proposition;

·      leverage Rathbones' investment in technology and operating model
to deliver an optimal client experience whilst improving operating efficiency
across the larger combined business;

·      deliver significant value creation through the strong fit between
the two operating models, with target annual run-rate cash synergies of at
least £60 million, driven primarily by cost savings as well as higher net
interest income;

·      generate attractive financial returns for Rathbones: (i) expected
to be accretive to underlying EPS in the first full year following completion;
(ii) targeting low-teens underlying EPS accretion in the third full year
following completion; and (iii) targeting double-digit post-tax return on
invested capital in the third full year following completion;

·      support the Enlarged Rathbones Group in maintaining a resilient
capital position through all-share consideration with earnings accretion
underpinning its progressive dividend policy; and

·      establish a long-term strategic partnership between Rathbones and
Investec Group to leverage attractive collaboration opportunities.

 

Investec Group will become a strategic shareholder in the Enlarged Rathbones
Group and, on completion, will enter into a relationship agreement. The
relationship agreement will include customary arm's length provisions as well
as lock-up and standstill arrangements as described in the section below
headed "Other Key Combination Terms".

 

Benefits to Investec Group

 

The Combination also offers a number of strategic and financial benefits for
Investec Group, including:

·        re-affirming Investec Group's commitment, in a
capital-efficient manner, to the strategically attractive UK wealth management
sector, where scale and technology are increasingly important to drive growth
and value creation;

·        establishing a long-term strategic partnership between the
Enlarged Rathbones Group and Investec Group, which will enhance the client
proposition across banking and wealth management services for both groups;

·        increasing the contribution of capital-light, recurring
earnings to Investec Group, with distributions to Investec Group supported by
a progressive Enlarged Rathbones Group dividend policy; and

·        creating sustainable value for Investec Group's shareholders.

 

Financial Outlook for the Enlarged Rathbones Group

The benefits of the Combination reinforce Rathbones' conviction in the
attractive medium-term growth outlook for the business. In particular, the
Enlarged Rathbones Group will:

·        continue to target an underlying operating margin in the low
20s (%) in 2023 and return to the high 20s (%) in 2024 as outlined in the 31
December 2022 financial year results; and

·        target an underlying operating margin of 30% or more in the
medium-term, once the benefits of the Combination are realised.

 

Other Key Combination Terms

 

Transaction structure

 

Under the terms of the Combination, Rathbones will, in consideration for the
transfer of the entire issued share capital of Investec W&I UK, issue to
Investec Group at completion: (i) Rathbones ordinary voting shares
representing 29.9% of Rathbones' enlarged ordinary voting share capital; and
(ii) Rathbones convertible non-voting ordinary shares, such that Investec
Group will have an economic interest in the Enlarged Rathbones Group of 41.25%
(together, the "Consideration Shares").

 

The convertible non-voting ordinary shares will rank pari passu with the
Rathbones ordinary shares save that they will not carry voting rights. At any
time following completion, Investec Group may convert convertible non-voting
ordinary shares into ordinary shares on a 1-for-1 basis provided that at no
time shall Investec Group hold more than 29.9% of Rathbones' enlarged voting
rights. The convertible non-voting ordinary shares will not be listed and will
be non-transferable.

The convertible non-voting ordinary shares are expected to qualify as common
equity tier 1 capital when issued on completion (subject to regulatory
approval).

Under the Listing Rules, the Combination represents a Class 1 acquisition for
Rathbones (and so will require the approval of Rathbones shareholders) and a
Class 2 disposal for Investec Group. The Combination is not subject to The
City Code on Takeovers and Mergers (the "Takeover Code").

 

Governance and Management

 

The Enlarged Rathbones Group will continue to be chaired by Clive Bannister
with the executive leadership team, under Rathbones CEO Paul Stockton,
bringing together an experienced leadership team from both businesses,
including Investec W&I UK CEO Iain Hooley (subject to regulatory
approval). A joint integration steering committee (the "Joint Integration
Steering Committee") will also be formed, comprising senior executives from
both Rathbones and Investec Group, to oversee and support the business
integration.

 

Under the terms of the Combination, two Investec Group representatives will
join the Board of the Enlarged Rathbones Group as non-executive directors upon
completion, reflecting Investec Group's position as a significant, strategic
shareholder. Investec Group will be entitled to nominate two non-executive
directors for as long as it holds at least 20% of the issued share capital of
the Enlarged Rathbones Group; and one non-executive director for as long as it
holds at least 10% but less than 20% of the issued share capital of the
Enlarged Rathbones Group. Investec Group intends the two non-executive
directors to be Ciaran Whelan, Executive Director of Investec plc, plus one
other, who Investec Group anticipates will be a current Investec plc
non-executive director. Both appointments will be subject to the approval of
Rathbones' Nomination Committee and the necessary regulatory approvals.

 

The Enlarged Rathbones Group will remain in compliance with the UK Corporate
Governance Code following completion.

 

Lock-up and Standstill

Subject to certain customary and other exceptions, Investec Group will be
subject to a lock-up for the first two years following completion during which
Investec Group will not be permitted to sell any Consideration Shares. In each
of years three and four following completion, Investec Group will be entitled
to sell one-third of the Consideration Shares which it owns. Any disposals of
shares by Investec Group once released from lock-up will be subject to
customary orderly market provisions. The lock-up arrangement will terminate on
the fourth anniversary of completion.

A standstill restriction will also apply to Investec Group under which it will
agree, among other matters, not to acquire shares in, or make an unsolicited
takeover offer for, Rathbones for the period from signing to completion and up
to the fifth anniversary of completion.

Steps to completion

 

The Combination is conditional, among other things, on:

 

·      approval of the Combination by Rathbones' shareholders (by
ordinary resolution) at a general meeting ("General Meeting") of Rathbones;

·      the Financial Conduct Authority ("FCA") and London Stock Exchange
agreeing to admit the ordinary share element of the Consideration Shares to
the premium listing segment of the Official List and to trading on the London
Stock Exchange's Main Market for listed securities;

·      no material adverse change having occurred in respect of either
Rathbones or Investec W&I UK;

·      the Competition and Markets Authority ("CMA") confirming in
response to a briefing note that it has no further questions or,
alternatively, CMA approval; and

·      relevant financial and other regulatory approvals and
notifications being obtained, including in the UK, Jersey, Guernsey and South
Africa.

 

The approval of Rathbones' shareholders will be sought at the General Meeting
which will be convened in Q2 2023. Completion is expected to occur in early Q4
2023 (subject to regulatory approvals).

 

Commenting on the Combination, Clive Bannister, Chair of Rathbones, said:

 

"Bringing Rathbones together with Investec W&I UK will create the UK's
leading discretionary wealth manager with approximately £100 billion of funds
under management and administration. This transaction not only presents a
compelling strategic and financial rationale, but also accelerates Rathbones'
growth strategy. Operating at scale allows the group to offer an even more
attractive proposition to clients and colleagues, supporting future growth and
creating significant value for Rathbones' shareholders. I look forward to
Investec W&I UK colleagues joining the Enlarged Rathbones Group, and
welcome Investec Group as a strategic shareholder. I am hugely excited about
what the Combination can deliver."

 

Commenting on the Combination, Fani Titi, Investec Group Chief Executive
Officer, said:

 

"The Combination of Investec W&I UK and Rathbones brings together two
businesses which have a long-standing heritage in UK wealth management and
closely aligned cultures. The strategic fit of the two businesses is
compelling with complementary strengths and capabilities to enhance the
overall proposition for clients. This will be supported by the strategic
partnership which offers attractive growth and collaboration opportunities for
both groups. The transaction represents a real step-change and long-term
opportunity for our UK wealth strategy, underscores our commitment to the UK
wealth management market and enhances our UK business as a whole."

 

Analyst presentation and conference call details

 

Rathbones will host a webcast for analysts and investors at 9.15am today. To
join the webcast, please use the following details:

https://www.investis-live.com/rathbone-brothers/64259b8a63f9f813004592ea/rabo
(https://protect-eu.mimecast.com/s/V7BqCg2OyCNWYEoFNY886?domain=investis-live.com)

Operator Assisted Dial-In:

United Kingdom (Local): +44 20 3936 2999 (tel:+442039362999)

United Kingdom (Toll-Free): +44 808 189 0158 (tel:+448081890158)

Access Code: 953597

The person responsible for arranging the release of this announcement on
behalf of Rathbones is Ali Johnson, Company Secretary.

 

Enquiries

 

Rathbones Group Plc

Tel: +44 20 7399
0000

Paul Stockton, Group Chief Executive Officer

Jennifer Mathias, Group Chief Financial Officer

Sarah Lewandowski, Investor Relations

 

BofA Securities (Financial Adviser and Joint Corporate Broker to Rathbones)

Tel: +44 20 7628 1000

Peter Luck, Fraser Allan, Joshua Maguire, Oliver Elias, Alex Penney

 

Peel Hunt (Joint Corporate Broker to Rathbones)

Tel: +44 20 7418 8900

Andrew Buchanan, John Welch, Oliver Jackson, Sam Milford

 

Camarco (PR Adviser to
Rathbones)

Tel: +44 20 3757 4984

Ed Gascoigne-Pees, Julia Tilley

 

Investec Group

Tel: +27 (0) 11 291 0129

Qaqambile Dwayi, Investor Relations

 

Investec Bank Limited (JSE Equity Sponsor to Investec Group)

Tel: +27 11 286 7000

Monique Otto

 

Fenchurch Advisory Partners (Joint Financial Adviser to Investec Group)

Tel: +44 20 7382 2222

Malik Karim, Graham Marchant, Tom Murphy, Josh Needham

 

Investec Investment Banking (Joint Financial Adviser and Joint Corporate
Broker to Investec Group)

Tel: +44 20 7597 5970

Christopher Baird, Tom Lewin, Sean Crookes

 

Brunswick (South Africa PR advisers to Investec Group)

Tel: +27 (0) 63 685 6053

Graeme Coetzee

 

Lansons (UK PR advisers to Investec Group)

Tel: +44 (0) 78 6010 1715

Tom Baldock

 

Addleshaw Goddard LLP is providing legal advice to Rathbones. Macfarlanes LLP
is providing legal advice to Investec Group.

 

 

 

 

 

Combination of Rathbones and Investec Wealth & Investment UK

to create the UK's leading discretionary wealth manager

 

1.   Introduction

 

The Boards and Management of Rathbones and Investec Group are pleased to
announce that they have entered into a definitive agreement regarding an
all-share combination of Rathbones with Investec W&I UK to create the UK's
leading discretionary wealth manager that will operate under the Rathbones
brand.

 

The Combination brings together two trusted and prestigious UK wealth
management businesses with closely aligned cultures and operating models and a
shared commitment to client-centric values and sustainable growth. The
Combination represents a significant value creation opportunity for both
Rathbones and Investec Group shareholders.

 

Under the terms of the Combination, the Enlarged Rathbones Group will remain
an independent premium-listed company operating under the Rathbones brand with
Investec Group as a supportive strategic shareholder. Following completion,
Investec Group will have an economic interest in Rathbones' enlarged share
capital of 41.25% with Investec Group's voting rights limited to 29.9% of
Rathbones' enlarged total voting rights. Existing Rathbones shareholders will
have an economic interest of 58.75% and voting rights of 70.1%. The terms of
the Combination imply an equity value of £839 million for Investec W&I
UK.

 

2.   Background to and Reasons for the Combination

 

2.1 Rathbones' Strategy

 

In October 2019, Rathbones launched its medium-term growth strategy for the
business in line with the Company's purpose of thinking, acting and investing
responsibly, centred around four pillars of:

 

·      Enriching the client and adviser proposition and experience;

·      Supporting and delivering growth;

·      Inspiring our people; and

·      Operating more efficiently.

 

Rathbones has made significant steps forward in each of these pillars over
recent years. With the benefits of scale increasingly key contributors in each
of these areas, inorganic growth has played an ever more important role across
the UK wealth sector. Rathbones has a track record of successful acquisitions,
including most recently the acquisition of Saunderson House in 2021, and
today's announcement represents the next step in Rathbones' growth strategy.

 

The Combination with Investec W&I UK further accelerates and complements
this strategy whilst also establishing a strategic collaboration opportunity
with Investec Group.

 

The need for cultural alignment remains an important principle of Rathbones'
acquisition strategy, and Investec W&I UK is a strong fit with Rathbones'
client-centric culture.

 

2.2 Reasons for the Combination

 

The Boards of Rathbones and Investec Group believe that the Combination will
unlock significant scale benefits through the creation of the UK's leading
discretionary wealth manager and with approximately £100 billion of FUMA.

 

In particular, the Boards of Rathbones and Investec Group believe that the
Combination will:

·      enhance and enrich the client proposition across investment
management, financial planning, fund management and banking services;

·      create a leading multi-channel distribution capability across
private clients, intermediaries and charities, through an expanded network in
23 locations across the UK and Channel Islands;

·      attract and retain the best industry talent through a leading
employee proposition;

·      leverage Rathbones' investment in technology and operating model
to deliver an optimal client experience whilst improving operating efficiency
across the larger combined business;

·      deliver significant value creation through the strong fit between
the two operating models, with target annual run-rate cash synergies of at
least £60 million, driven primarily by cost savings as well as higher net
interest income;

·      generate attractive financial returns for Rathbones: (i) expected
to be accretive to underlying EPS in the first full year following completion;
(ii) targeting low-teens underlying EPS accretion in the third full year
following completion; and (iii) targeting double-digit post-tax return on
invested capital in the third full year following completion;

·      support the Enlarged Rathbones Group in maintaining a resilient
capital position through all share consideration with earnings accretion
underpinning its progressive dividend policy; and

·      establish a long-term strategic partnership between Rathbones and
Investec Group to leverage attractive collaboration opportunities.

 

2.3 Further Details on the Financial Impact of the
Combination

 

The Combination will bring an additional £39.7 billion of FUMA to the
Rathbones Group and 325 investment managers and 45 financial planners as well
as approximately 40,000 client relationships. Investec W&I UK has 15
offices, many of which are in complementary locations and will enable the
Enlarged Rathbones Group to operate in 23 locations across the UK and Channel
Islands.

Rathbones expects that the integration of Investec W&I UK will unlock
significant value for shareholders over time. The Combination is targeting to
deliver total annualised run-rate synergies of at least £60 million on a
pre-tax cash basis(1), of which approximately:

·      £18 million is expected to be generated from the consolidation
of technology platforms and operations, leveraging Rathbones' well-invested
technology platform and benefiting from collaboration with Investec Group to
support further operational efficiencies;

·      £32 million is expected to be generated from the consolidation
of enablement functions, third party services, property and other Combination
benefits; and

·      £10 million(2) of additional net interest income as a result of
migrating Investec W&I UK's client and firm cash on to Rathbones' platform
and banking licence, allowing for greater investment flexibility to generate
higher returns.

Rathbones expects to realise approximately 25% of the estimated run-rate
synergies by the end of the first full year following completion, to realise
approximately 70% by the end of the second full year and to realise more than
90% of the remaining run-rate synergies in the third full year post-completion
once the migration of Investec W&I UK's clients to Rathbones' platform is
complete.

As of the date of this announcement, Rathbones expects to incur net cash costs
to achieve(3) the expected synergies of approximately £98 million on a
pre-tax basis with more than 90% to be incurred broadly evenly in the first
and second full years post-completion with the balance in the third full year
post-completion. Of the £98 million, approximately £78 million is expected
to be incurred as non-underlying expenses and approximately £20 million
related to property leases will be depreciated in accordance with IFRS 16 over
a period of approximately 9 years through underlying earnings.

The Rathbones directors believe that the estimated synergies set out above
could not be achieved without the Combination and reflect both the beneficial
elements and relevant costs. The synergies targeted from the Combination are
in addition to those from the integration of Saunderson House and Speirs &
Jeffrey.

The costs to achieve set out above exclude approximately £34 million of
pre-tax net costs(4) expected to be incurred in relation to incentivisation of
key employees of the Enlarged Rathbones Group to deliver the benefits of the
Combination, to be incurred over approximately five years post-completion
(with the majority in the first three years post-completion) and primarily in
the form of Rathbones shares.

It is intended that the Enlarged Rathbones Group's London office will operate
from the same building as Investec Group at 30 Gresham Street, which will
further support the strategic partnership between the two organisations.

(_____________________________________)

(1) On a cash basis, before IFRS acquisition and lease accounting impact and
depreciation.

(2)  Based on current cash balances within Investec W&I UK accounts and
current interest rate and assuming a Bank of England base rate of 4.0%. For
illustrative purposes, if the Bank of England base rate were 3.0%, it is
expected that the net interest income synergy would reduce by approximately
£2 million.

(3) Separate to the cost to achieve, the Enlarged Rathbones Group will incur
capital expenditure estimated at £25 million in relation to the fit-out of
additional space in the London office. This will be funded by a combination of
anticipated lease incentives from the landlord and additional cash
contribution from the Investec Group, that will be retained by Investec
W&I UK at completion.

(4) The cost of £34 million is stated net of a cash contribution from
Investec Group equivalent to £31 million on a pre-tax basis.

 

Principal Terms of the Combination

Share Purchase Agreement and consideration structure

 

Rathbones and Investec Group have entered into a share purchase agreement (the
"Share Purchase Agreement"). Under the terms of the Share Purchase Agreement,
at completion Rathbones will acquire the entire issued share capital of
Investec W&I UK from Investec Group, and in exchange, Investec Group will
receive at completion (i) Rathbones ordinary voting shares representing 29.9%
of Rathbones' enlarged ordinary voting share capital ("Ordinary Shares"); and
(ii) Rathbones non-voting ordinary shares ("Convertible Non-Voting Ordinary
Shares"), such that Investec Group will have an economic interest in the
Enlarged Rathbones Group of 41.25%.

The Convertible Non-Voting Ordinary Shares will rank pari passu with the
Ordinary Shares save that they will not carry voting rights. At any time after
completion, Investec Group may convert the Convertible Non-Voting Ordinary
Shares into Ordinary Shares on a 1-for-1 basis provided that at no time shall
Investec Group hold more than 29.9% of Rathbones' enlarged voting rights. The
Convertible Non-Voting Ordinary Shares are non-transferable. Both the Ordinary
Shares and Convertible Non-Voting Ordinary Shares are expected to qualify as
common equity tier 1 capital.

The Share Purchase Agreement contains warranties, covenants and undertakings
given by, and termination rights in favour of, each of Rathbones and Investec
Group that are customary for a transaction of this nature.

Completion is subject to, among other matters:

·      approval of the Combination by Rathbones' shareholders (by
ordinary resolution) at a General Meeting of Rathbones;

·      the FCA and London Stock Exchange agreeing to admit the Ordinary
Share element of the Consideration Shares to the premium listing segment of
the Official List and to trading on the London Stock Exchange's Main Market
for listed securities;

·      no material adverse change having occurred in respect of either
Rathbones or Investec W&I UK;

·      the CMA confirming in response to a briefing note that it has no
further questions or, alternatively, CMA approval; and

·      relevant financial and other regulatory approvals and
notifications being obtained, including in the UK, Jersey, Guernsey and South
Africa.

Completion is not conditional on investor or shareholder approvals in respect
of Investec Group.

The Share Purchase Agreement contains other customary protective termination
rights and conduct obligations and will be capable of termination by either
Rathbones or Investec Group if completion has not occurred on or before 3
April 2024 or such later date as Rathbones and Investec Group may agree.

The General Meeting is expected to be convened during Q2 2023. If the
Rathbones Board changes its recommendation that Rathbones shareholders vote in
favour of the Combination, then either Rathbones or Investec Group will be
entitled to terminate the Share Purchase Agreement, and Rathbones will be
required to pay a termination fee of £9.5 million plus applicable VAT to
Investec Group. This fee is also payable if a competing proposal becomes
effective which has been recommended by the Board of Rathbones. Completion is
expected to occur in early Q4 2023 (subject to regulatory approvals).

Relationship Agreement

At completion, Rathbones and Investec Group will enter into a relationship
agreement governing the relationship between them (the "Relationship
Agreement").

The Relationship Agreement will set out Investec Group's rights to appoint
non-executive directors as set out in the section headed "Governance and
Management" below. Rathbones and Investec Group will establish a joint
integration steering committee (the "Joint Integration Steering Committee"),
comprising senior executives from both Rathbones and Investec Group to oversee
and support the business integration between (i) signing and closing; and (ii)
for not less than three years following closing.

Subject to certain customary and other exceptions Investec Group will be
subject to a lock-up for the first two years following completion during which
it will not be permitted to sell any Consideration Shares. In each of years
three and four following completion, Investec Group will become entitled to
sell one third of the Consideration Shares which it owns. Investec Group may
not sell more than one third of the Consideration Shares in any rolling
12-month period and may not roll forward any unused allowance from years two
to three into years three to four. Any disposals of Consideration Shares by
Investec Group once released from lock-up will be subject to customary orderly
marketing provisions. The lock-up arrangement will terminate on the fourth
anniversary of completion.

A standstill restriction will also apply to Investec Group under which it will
agree not, among other matters, to acquire further shares in, or make an
unsolicited takeover offer, for Rathbones for the period from signing to
completion and up to the fifth anniversary of completion.

Rathbones and Investec Group have also entered into arrangements in relation
to the separation and transition of Investec W&I UK from the Investec
Group to Rathbones. The parties have also entered into non-binding memoranda
of understanding in relation to future co-operation between Rathbones and
Investec Group. Rathbones and Investec Group intend to progress these matters
further over the coming months and further details will be provided in the
Circular.

Takeover Code

 

A Rule 9 Waiver will not be sought for the conversion of Convertible
Non-Voting Ordinary Shares into Ordinary Shares, reflecting that the
Convertible Non-Voting Ordinary Shares would not be able to be converted into
Ordinary Shares if such conversion would result in Investec Group owning more
than 29.9% of Rathbones' enlarged ordinary voting share capital. Accordingly,
the Combination is not subject to the Takeover Code and consequently the
provisions of the Takeover Code applicable to a Rule 9 Waiver will not apply.

 

3.   Dividend Policy

 

Rathbones operates a generally progressive dividend policy which aims to
increase the dividend in line with the growth of the business over each
economic cycle. The Rathbones Board expects the Combination to generate
attractive financial returns, which, combined with the Enlarged Rathbones
Group's strong capital base, significant anticipated future capital generation
and encouraging outlook, reinforces Rathbones' commitment to its progressive
dividend policy.

 

4.   Governance and Management

 

The Enlarged Rathbones Group will retain its premium listing on the Official
List and continue to be traded on the London Stock Exchange's Main Market for
listed securities as Rathbones Group Plc. The Enlarged Rathbones Group will
continue to be chaired by Clive Bannister and led by Rathbones' CEO Paul
Stockton, with the broader management team bringing together the best leaders
from both businesses, including Iain Hooley, CEO (subject to regulatory
approval) of Investec W&I UK, supported by Rathbones and Investec W&I
UK colleagues.

 

Investec Group will be entitled to nominate, subject to satisfaction of
certain customary suitability criteria, for appointment to the Board of the
Enlarged Rathbones Group:

 

(i)         two non-executive directors for as long as it holds at
least 20% of the issued share capital of the Enlarged Rathbones Group; and

(ii)         one non-executive director for as long as it holds at
least 10% but less than 20% of the issued share capital of the Enlarged
Rathbones Group.

 

Investec Group intends the two non-executive directors to be Ciaran Whelan,
Executive Director of Investec plc, plus one other, who Investec Group
anticipates will be a current Investec plc non-executive director. Both
appointments will be subject to the approval of Rathbones' Nomination
Committee and the necessary regulatory approvals.

 

The Enlarged Rathbones Group will remain in compliance with the UK Corporate
Governance Code following completion.

 

5.   Integration Planning

 

Rathbones' management team has a proven track record of integrating
acquisitions, including most recently the Saunderson House acquisition in 2021
where the integration continues to progress well. As referenced above, a Joint
Integration Steering Committee has been established to oversee the integration
with common delivery cultures and aligned outcomes that draw on the "best of
both" approach that has been adopted to define the combined operating model.
The integration will see close collaboration with Investec Group with the
complementary technology infrastructure and operating models of the two
businesses being well suited for the Combination.

 

The integration will be phased into preparation; parallel run; integration;
and optimisation stages to ensure an efficient process that manages the
interests and integration objectives of all stakeholders. This governance
structure has been put in place to ensure that cadence of delivery is
maintained.

 

6.   Next Steps and Timetable

 

The Combination will require the approval of Rathbones' shareholders. A
combined prospectus and Class 1 circular (the "Circular") containing further
details of the Combination, appropriate details on Rathbones, Investec W&I
UK, Investec Group, the rights attaching to the Consideration Shares, the
Rathbones Board's recommendation in respect of the Combination, the notice of
General Meeting and the resolutions required to approve the Combination is
expected to be sent to Rathbones' shareholders in Q2 2023.

 

7.   Information on Rathbones Group Plc

 

Rathbones provides individual investment and wealth management services for
private clients, charities, trustees and professional partners. Rathbones has
been in business since 1742 and has been trusted for generations to manage and
preserve clients' wealth. Rathbones is a FTSE 250 company operating from 15
offices throughout the UK and Jersey and had FUMA of £60.2 billion as at 31
December 2022.

 

8.   Information on Investec Group

 

Investec Group (comprising Investec PLC and Investec Limited) partners with
private, institutional, and corporate clients, offering international banking,
investments, and wealth management services in two principal markets, South
Africa and the UK, as well as certain other countries. The group was
established in 1974 and currently has approximately 8,500 employees. In 2002,
Investec Group implemented a dual listed company structure with listings on
the London and Johannesburg Stock Exchanges.

 

9.   Information on Investec W&I UK

 

Investec W&I UK is one of the UK's leading private client wealth managers,
with responsibility for £39.7 billion of FUMA as at 30 September 2022,
offering holistic wealth management services covering bespoke discretionary
investment management together with financial planning and advice to private
clients, trusts, charities and pension funds. The business operates from 15
offices across the UK and Channel Islands, reflecting Investec W&I UK's
truly regional heritage(5). As of 30 September 2022, approximately 74% of FUMA
relate to private client assets(6) with the balance being charities and
clients introduced by intermediaries.

 

Investec W&I UK has historically benefited from cross referrals from
Investec Bank plc which as at 30 September 2022 had over 6,000 private banking
clients and contributed approximately £280 million of funds under management
("FUM") referrals to Investec W&I UK in the 6 months to 30 September 2022.

 

(_____________________________________)

(5) Excludes consolidation adjustments relating to referred client assets from
Investec W&I South Africa (client assets presented on a 100% basis).

(6) Based on Investec W&I UK definition of private clients.

 

For the year ended 31 March 2022, Investec W&I UK reported profit before
tax of £84.6 million and reported gross assets of £589.9 million. Further
financial information in relation to the Investec W&I UK business is set
out in Appendix I to this announcement

This announcement should be read in its entirety. In particular, you should
read and understand the information provided in the 'Important Notices'
section below.

 

Appendix I - Additional Financial Information

Investec W&I UK summary unaudited financial information

The following financial information on Investec W&I UK reflects the
perimeter of the Combination and has been extracted from unaudited management
financial information prepared by Investec W&I UK and adjusted for
Rathbones' principal accounting policies. Investec W&I UK has not in the
past constituted a separate group and has not previously prepared or reported
on any combined of consolidated financial information. This financial
information is provided for background information only, has not been
independently verified by Rathbones and may be different to the financial
information on Investec W&I UK that will be reported in the Circular when
published.

In accordance with the Listing Rules, the Circular when published will include
full audited historical three-year financial information on Investec W&I
UK under IFRS, in a form consistent with the accounting policies adopted by
Rathbones in its own annual consolidated accounts. It is possible that the
financial information in this Appendix may differ from the financial
information included in the Circular.

 Investec W&I UK           12 months to 31-Mar 2020  12 months to 31-Mar 2021  12 months to 31-Mar 2022  6 months to 30-Sep 2022
 Closing FUMA((1))         £32.8bn                    £41.3bn                   £43.7bn                   £39.7bn
 Net organic flows         £0.5bn                     £1.1bn                    £1.2bn                   £0.4bn
 Organic growth rate((2))  1.3%                      3.4%                      2.9%                      2.0%((3))
 Operating Income          £301.8m                   £311.2m                   £337.8m                   £169.1m
 Underlying PBT            £67.3m                    £77.0m                    £89.2m                    £39.3m
 Underlying PBT Margin     22.3%                     24.8%                     26.4%                     23.2%

Notes: (1) Closing FUMA as at 31 March 2020, 31 March 2021, 31 March 2022 and
30 September 2022. (2)  Net organic growth calculated as net flows / opening
FUMA. (3) Based on an annualised rate. FUMA and underlying measures are
unaudited.

As set out in the Transitional Services Agreement, on transfer to Rathbones,
the amount charged to Investec W&I UK by Investec Group for the provision
of central services will reduce by approximately £7 million per annum based
on an annualised figure for the 6 months to 30 September 2022.

Illustrative financial information on the Combination

The financial information below in relation to Rathbones has been extracted
from Rathbones' audited IFRS consolidated accounts for the year ended 31
December 2022. As above, the financial information below in relation to
Investec W&I UK has been extracted from unaudited management financial
information and adjusted for Rathbones' principal accounting policies.

                        Investec W&I UK                        Investec W&I UK                       Rathbones

                        12 months to 31-Mar 2022 (unaudited)   6 months to 30-Sep 2022 (unaudited)   12 months to 31-Dec 2022 (audited)
 Closing FUMA((1))       £43.7bn                                £39.7bn                               £60.2bn
 Operating Income       £337.8m                                £169.1m                               £455.9m
 Underlying PBT         £89.2m                                 £39.3m                                £97.1m(()(2))
 Underlying PBT Margin  26.4%                                  23.2%                                 21.3%

Notes: (1) Closing FUMA as at 31 March 2022 and 30 September 2022. (2)
Rathbones' underlying PBT includes digital programme spend of £16.3 million.
FUMA and underlying measures are unaudited.

Rathbones uses certain measures to assess the financial performance of its
business. Certain of the measures included in this Appendix I are 'non-IFRS'
measures and are calculated using financial measures that are not calculated
in accordance with IFRS. These 'non-IFRS' measures include underlying measures
of income, expenditure and earnings when assessing the performance of the
Company. Rathbones believes that these are considered to provide useful
additional information on business performance, rather than reviewing results
on a statutory basis only. These measures are also widely used by research
analysts covering the Company. These non-IFRS measures are not measures based
on IFRS and should not be considered as an alternative to the audited
historical financial information that will be included in the Circular or
other indicators based on IFRS measures. Other companies may calculate these
measures in a different way, and Rathbones' presentation may not be comparable
to similarly entitled measures of other companies.

 

 

 

Appendix II - Sources and Bases

1.   The latest practicable date before the date of this announcement is 3
April 2023 ("Latest Practicable Date").

2.   Rathbones had 63,433,381 ordinary shares in issue as at the Latest
Practicable Date.

3.   Investec W&I UK's equity value calculated using 44,538,331 new
Rathbones shares to be issued to Investec Group (comprising 27,056,463
Ordinary Shares and 17,481,868 Convertible Non-Voting Ordinary Shares)
multiplied by the closing price of Rathbones' ordinary shares per the Daily
Official List of £18.84 on the Latest Practicable Date.

4.   The Combined FUMA of approximately £100 billion has been calculated
from Rathbones FUMA per its full year results announcement for the year ended
31 December 2022 of £60.2 billion and Investec W&I UK's FUMA of
approximately £39.7 billion for six months ended 30 September 2022.

5.   Net interest income assumes a Bank of England base rate of 4.0%. For
illustrative purposes, if the Bank of England base rate were 3.0%, it is
expected that the net interest income synergy would reduce by approximately
£2 million.

6.   The synergies and cost savings set out in this announcement have been
informed by Rathbones management's commercial experience and their experience
of acquiring and integrating other businesses. Such statements are not
intended to be a profit forecast and should not be interpreted as such. Such
statements relate to future actions and circumstances which, by their nature,
involve risks, uncertainties and contingencies. As a result, the synergies
referred to may not be achieved, may be achieved later or sooner than
estimated or could be materially different from those estimated.

The statements have been prepared on the basis of various assumptions and
expectations including, without limitation: (i) the scope, nature and timing
of the process to integrate Investec W&I UK and its operations into the
Enlarged Rathbones Group and that there are no material differences or
 delays to the process and timing contemplated; (ii) assumptions on future
interest rates and foreign exchange rates and the potential movements in such
rates; (iii) that there will be no material change in macroeconomic, legal or
regulatory conditions that materially impact on the implementation or costs to
achieve the proposed cost savings; (iv) that there will be no significant
change in the underlying operations or assets of the businesses of Rathbones
or Investec W&I UK as a result of the Combination; and (v) the timing,
extent and costs of investment to achieve the expected synergies.

The baselines used for the quantified cost synergies were annualised Investec
Group management accounts for the six-month period from 1 April 2022 to 30
September 2022, and included adjustments for: (i) standalone operating
expenses and group recharges; (ii) allocations for services to other Investec
Group entities; and (iii) select Rathbones operating expense items.

Baseline costs for each synergy and cost saving have been calculated exclusive
of depreciation and amortisation.

7.   Rathbones' annual report for the year ended 31 December 2022 is
available at https://www.rathbones.com/investor relations/results and
presentations

 

8.   Investec W&I UK historical financials do not include pro forma
adjustments in respect of its acquisition of Murray Asset Management which
completed in February 2023 (Murray Asset Management held approximately £400
million FUMA as at 31 December 2022). The financial information on Investec
W&I UK reflects the perimeter of the transaction and has been extracted
from unaudited management financial information prepared by Investec W&I
UK, adjusted for Rathbones' principal accounting policies, and has not been
independently verified by Rathbones.

 

9.   Investec Bank UK statistics on high net worth client base,
characteristics and historical bank to wealth FUM referrals based on Investec
Group 2022 Interim Results Booklet, Investec Group 2021 Business Update
Presentation and Investec Group 2022 Annual Results Booklet.

 

IMPORTANT NOTICES

The information contained in this announcement is inside information as
stipulated under the UK Market Abuse Regulation. Upon publication of this
announcement, this inside information is now considered to be in the public
domain.

 

Neither this announcement nor any copy of it may be taken or transmitted
directly or indirectly into or from any jurisdiction where to do so would
constitute a violation of the relevant laws or regulations of such
jurisdiction. Any failure to comply with this restriction may constitute a
violation of such laws or regulations. Persons into whose possession this
announcement or other information referred to herein comes should inform
themselves about, and observe, any restrictions in such laws or regulations.

 

This announcement has been prepared for the purpose of complying with the
applicable law and regulation of the United Kingdom and information disclosed
may not be the same as that which would have been disclosed if this
announcement had been prepared in accordance with the laws and regulations of
jurisdictions outside the United Kingdom.

 

This announcement does not constitute or form part of any offer, invitation to
sell, otherwise dispose of or issue, or any solicitation of any offer to
purchase or subscribe for, any shares or other securities nor shall it or any
part of it, nor the fact of its distribution, form the basis of, or be relied
on in connection with, any contract commitment or investment decision.

 

This announcement does not constitute an offer of securities for sale in the
United States or an offer to acquire or exchange securities in the United
States. No offer to acquire securities or to exchange securities for other
securities has been made, or will be made, directly or indirectly, in or into,
or by use of the mails, any means or instrumentality of interstate or foreign
commerce or any facilities of a national securities exchange of, the United
States or any other country in which such offer may not be made other than:
(i) in accordance with applicable United States securities laws or the
securities laws of such other country, as the case may be; or (ii) pursuant to
an available exemption from such requirements. The securities referred to
herein have not been and will not be registered under the U.S. Securities Act
of 1933, as amended, or under the securities laws of any state or other
jurisdiction of the United States.

 

This announcement may include statements that are, or may be deemed to be,
forward-looking statements. These forward-looking statements may be identified
by the use of forward-looking terminology, including the terms "believes",
"estimates", "envisages", "plans", "projects", "anticipates", "targets",
"aims", "expects", "intends", "may", "will" or "should" or, in each case,
their negative or other variations or comparable terminology, or by
discussions of strategy, plans, objectives, goals, future events or
intentions. These forward-looking statements include all matters that are not
historical facts and involve predictions. Forward-looking statements may and
often do differ materially from actual results. Any forward-looking statements
reflect Rathbones' current views with respect to future events and are subject
to risks relating to future events and other risks, uncertainties and
assumptions relating to Rathbones' or Investec W&I UK's results of
operations, financial position, liquidity, prospects, growth or strategies and
the industries in which they operate. Forward-looking statements speak only as
of the date on which they are made and cannot be relied upon as a guide to
future performance. Save as required by law or regulation, Rathbones disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements in this announcement that may occur due to any
change in its expectations or to reflect events or circumstances after the
date of this announcement. Nothing in this announcement should be construed as
a profit estimate or profit forecast and no statement in this announcement
should be interpreted to mean that earnings per share of Rathbones for the
current or future financial years would necessarily match or exceed the
historical published earnings per share of Rathbones.

 

Completion of the Combination is subject to the satisfaction of a number of
conditions as more fully described in this announcement. Consequently, there
can be no certainty that completion of the Combination will be forthcoming.

 

This announcement is not a prospectus and has been prepared solely for the
Combination referred to in this announcement. The Circular will be published
by Rathbones in connection with the Combination in due course.

 

Certain figures contained in this announcement, including financial
information, have been subject to rounding adjustments. Accordingly, in
certain instances, the sum or percentage change of the numbers contained in
this announcement may not conform exactly with the total figure given.

 

Merrill Lynch International ("BofA Securities"), which is authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority in the UK, is acting
exclusively for Rathbones in connection with the Combination and for no one
else and will not be responsible to anyone other than Rathbones for providing
the protections afforded to its clients or for providing advice in relation to
the Combination. Neither BofA Securities, nor any of its affiliates, owes or
accepts any duty, liability or responsibility whatsoever (whether direct or
indirect, whether in contract, in tort, under statute or otherwise) to any
person who is not a client of BofA Securities in connection with this
announcement, any statement contained herein or otherwise. No representation
or warranty, express or implied, is made by BofA Securities as to the contents
of this announcement, including its accuracy, fairness, sufficiency,
completeness or verification.

 

Peel Hunt LLP ("Peel Hunt"), which is authorised and regulated in the United
Kingdom by the Financial Conduct Authority, is acting exclusively for
Rathbones and for no one else in connection with the matters referred to in
this announcement. Peel Hunt will not be responsible to anyone other than
Rathbones for providing the protections afforded to clients of Peel Hunt nor
for providing advice in relation to the contents of, or matters referred to
in, this announcement. Neither Peel Hunt nor any of its affiliates owes or
accepts any duty, liability or responsibility whatsoever (whether direct or
indirect, whether in contract, in tort, under statute or otherwise) to any
person who is not a client of Peel Hunt in connection with the matters
referred to in this announcement, or otherwise.

 

Fenchurch Advisory Partners LLP ("Fenchurch"), which is authorised and
regulated by the Financial Conduct Authority, is acting exclusively for
Investec Group and no one else in connection with the matters referred to in
this announcement. Fenchurch will not be responsible to anyone other than
Investec Group for providing the protections afforded to clients of Fenchurch,
nor for providing advice in relation to the contents of, or matters referred
to in, this announcement. Neither Fenchurch nor any of its affiliates owes or
accepts any duty, liability or responsibility whatsoever (whether direct or
indirect, whether in contract, in tort, under statute or otherwise) to any
person who is not a client of Fenchurch in connection with the matters
referred to in this announcement, or otherwise.

 

Investec Bank plc ("Investec Investment Banking"), which is authorised by the
Prudential Regulation Authority (the "PRA") and regulated by the Financial
Conduct Authority and PRA in the United Kingdom, is acting exclusively as
financial adviser to Investec Group and for no one else in connection with the
matters referred to in this announcement and will not be responsible to any
person other than Investec Group for providing the protections afforded to
clients of Investec Investment Banking, nor for providing advice in relation
to the content of this announcement or any matter referred to in this
announcement. Neither Investec Investment Banking nor any of its subsidiaries,
branches or affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in tort, under
statute or otherwise) to any person who is not a client of Investec in
connection with this announcement, any statement contained herein or
otherwise.

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