Jupiter Fund Mgmt - Acquisition

Jupiter Fund Management

17/02/2020 07:00

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RNS Number : 1791D  Jupiter Fund Management PLC  17 February 2020

17 February 2020

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

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

Jupiter Fund Management plc

Proposed acquisition of Merian Global Investors Limited

 

Further to the announcement on 15 February 2020 in response to press
speculation, the board of Jupiter Fund Management plc (the "Jupiter Board") is
pleased to announce the proposed acquisition of Merian Global Investors
Limited ("Merian"), an independent active asset management firm with more than
£22 billion assets under management 1  ("AUM") (the "Acquisition").

 

1.   Summary

The Acquisition represents an opportunity to accelerate Jupiter's strategy and
is expected to deliver the following key benefits:

 * Enhances Jupiter's position as one of the UK's leading active asset managers
with more than £65 billion of AUM.

 * Complementary and additive acquisition aligned with Jupiter's high conviction
active approach and investment culture.

 * Reinforces Jupiter's core UK franchise and extends capabilities into
attractive product gaps.

 * Diversifies Jupiter's existing business with the current top 5 funds falling
from 46 per cent. of AUM to 33 per cent. of the AUM of the Enlarged Group;
number of funds with greater than £1 billion of AUM increasing from 10 to 16;
and top 4 capabilities moving from 76 per cent. of AUM to 53 per cent.

 * Migration of Merian's investment team and assets onto Jupiter's operational
platform through the execution of a clear and well-designed integration plan.

 * Substantial cost efficiencies expected to deliver low to mid-teen accretion
to Underlying EPS from 2021 and increasing from 2022 onwards 2 .

 * The Acquisition is consistent with Jupiter's strategic priorities and
accelerates its growth plans.

 * Completion of the Acquisition is subject to the satisfaction of customary
conditions including regulatory consents and Jupiter shareholder approval.

 

 

2.   Transaction highlights

 

§ Jupiter is to acquire the entire issued share capital of Merian for an
upfront equity consideration of £370 million to be paid through the issue of
95,360,825 new Jupiter Shares to Merian shareholders (the "Consideration
Shares"), with an additional deferred earn-out of up to £20 million (the
"Deferred Earn Out") payable to Key Merian Management Shareholders, subject to
growing and retaining revenues in their investment strategies 3  (see Appendix
I for further details).

 

§ Merian will be acquired with target net debt of £29 million (assuming
Completion on 1 July 2020), subject to an adjustment if net debt at Completion
exceeds this figure (and with target net debt of £35 million if Completion
occurs after the record date for the Jupiter 2020 interim dividend payment).

 

§ Downside protection from a purchase price adjustment mechanism (the
"Purchase Price Adjustment"), to be settled in cash, up to a maximum value of
£100 million:

o  The Purchase Price Adjustment is primarily determined with reference to
Merian AUM as at 31 December 2021 (see Appendix I for further details).

 

§ Following Completion:

o  Merian shareholders will own, in aggregate, approximately 17 per cent. of
the enlarged share capital of Jupiter.

o  Key Merian Management Shareholders, who manage approximately 87 per cent.
of total Merian AUM, will collectively own approximately 1 per cent. of the
enlarged share capital of Jupiter, creating an alignment of interests with
other Jupiter Shareholders.

o  Key Merian Management Shareholders have entered into full-time employment
contracts with Jupiter which contain comprehensive non-compete and non-solicit
obligations.

o  TA Associates Management LP ("TA") will once again become a significant
long-term shareholder of Jupiter with an approximate 16 per cent.
shareholding. For so long as TA holds directly or indirectly in aggregate 10
per cent. or more of Jupiter's issued share capital, TA will be entitled to
nominate a non-executive director to the Jupiter Board.

o  TA, funds advised by TA and Key Merian Management Shareholders have each
entered into customary lock-up agreements.

 

§ The Enlarged Group will have combined AUM of £65 billion as at 31 December
2019.

 

§ Merian AUM of £22.4 billion as at 31 December 2019 with associated
estimated run-rate net management fees of approximately £140 million per
annum.

 

§ Merian's existing debt to be assumed by Jupiter and repaid at or before
Completion. Jupiter intends to issue £50 million of Tier 2 subordinated debt,
resulting in combined surplus regulatory capital of approximately £70-100
million 4 .

 

§ No change to the senior leadership at Jupiter, and one additional
non-executive Board member to be nominated by TA following Completion.

 

§ Completion of the Acquisition is expected to occur in the second half of
2020, with the earliest expected completion date being 1 July 2020, subject to
customary conditions including receipt of relevant regulatory approvals and
approval by Jupiter Shareholders.

 

 

3.   Client, strategic and financial rationale

The Jupiter Board believes that there is a compelling strategic and financial
rationale for the Acquisition and that the Acquisition will provide attractive
strategic, commercial and financial benefits to Jupiter, its clients and its
shareholders as outlined below:

 

Client benefits

§ Significantly enhances Jupiter's UK investment capability by adding scale
across the investment style and market capitalisation range.

 

§ Widens Jupiter's range of investment capabilities available to clients.

 

§ Adds scale to strategic investments in Jupiter's capabilities, for example,
the build-out of Fixed Income and Global Emerging Markets.

 

§ Enhanced ability for Jupiter to develop and seed new strategies.

 

§ Provides greater opportunity to invest in the Enlarged Group; including for
example the capacity to invest in technology to support alpha generation and
improve client servicing.

 

Strategic Benefits

Enhances Jupiter's position as one of the UK's leading high-conviction active
asset managers

§ The Enlarged Group, operating under the Jupiter brand, will be a leading UK
active specialty manager with more than £65 billion of AUM.

 

Complementary and additive acquisition - involving two businesses with aligned
cultures and investment philosophy - which will not alter Jupiter's purpose
and focus

§ Jupiter and Merian share a commitment to high-conviction, active asset
management with no imposed house view, providing fund managers with the
freedom to make investment decisions, reinforcing Jupiter's position as an
attractive home for leading investment talent.

 

§ Merian's active investment approach is evidenced by its long-term
investment performance track record, with approximately 53 per cent. of Merian
AUM above median over 3 years 5  and approximately £8 billion of AUM top
decile over 10 years 6 .

 

§ Both firms have a long track record of delivering attractive returns for
clients, with the Enlarged Group having approximately 66 per cent. of AUM
above median over three years 7 .

Reinforces Jupiter's core UK franchise by broadening its UK capabilities and
strengthening its UK retail distribution presence

§ Adds to Jupiter's capabilities in UK equities, bringing additional
expertise in UK all-cap growth and small / mid-cap strategies and
complementing Jupiter's strong Value franchise.

 

§ Creates the second largest manager of retail funds in the UK with
approximately £40 billion AUM 8 .

 

Strengthens and diversifies Jupiter's client base with distinct client sets in
international markets, particularly the Middle East, APAC and Latin America /
US Offshore

§ Limited institutional client overlap, adds new relationships with leading
global institutions and sovereign wealth funds.

 

§ Provides meaningful AUM in geographies including the Middle East, APAC and
Latin America / US Offshore.

 

§ Subject to the approval of the independent board of Merian Chrysalis, it
will add scale and capability to Jupiter's investment trust business.

 

Extends Jupiter's capabilities into attractive product gaps with growth
potential and adds scale to other existing capabilities

§ Adds attractive investment capabilities such as Global Systematic Equity,
Liquid Alternatives and Contingent Capital and increases scale in growth areas
such as Emerging Market Debt, Multi-sector Bonds, Corporate Bonds and Equity.

 

Delivers improvement in fund diversification

§ The Acquisition will meaningfully improve Jupiter's fund diversity, with
the proportion of AUM managed by its largest five funds falling from
approximately 46 per cent. to approximately 33 per cent. of the Enlarged
Group's AUM following Completion.

 

§ The number of funds with AUM above £1 billion increases from 10 to 16.

 

§ Top 4 investment capabilities move from 76 per cent. of Jupiter AUM to 53
per cent. of the Enlarged Group AUM following Completion.

 

Increases Jupiter's capacity to invest, positioning the business better to
execute its growth agenda

§ Provides greater scale and the financial resources with increased capacity
to invest in future growth, particularly through recruitment of investment
talent, the expansion of Jupiter's distribution footprint and the development
of new products for the benefit of clients.

 

§ Better positions Jupiter to invest in the growth of its international,
institutional and investment trust capabilities and execute its strategic
priorities to diversify the business by channel, geography and product.

 

Financial Rationale

Compelling financial benefits for Jupiter Shareholders

§ Attractive value creation opportunity for Jupiter Shareholders, underpinned
by significant cost saving from removal of operational overlap and duplication
within the Enlarged Group.

 

§ Expected to deliver low to mid-teen accretion in Underlying EPS from 2021,
and increasing from 2022 onwards 9 , with returns to Jupiter in excess of its
cost of capital.

 

§ Following completion of the integration of the Merian business and
extraction of the anticipated cost synergies, on a fully-phased basis, the
Jupiter Board expects the acquired business to have the potential to
contribute to an Operating Margin 10  not below 50 per cent. on prudent asset
level assumptions and up to 60 per cent., which compares with Jupiter's 2019
Operating Margin of 43 per cent.

 

§ Based on December 2019 run-rate revenues, it is anticipated that shortly
following Completion, the Operating Margin of Merian would be close to 50 per
cent.

 

o  This Operating Margin can be delivered while maintaining a compensation
ratio in line with current Jupiter levels.

 

Clear integration plan

§ Merian's business to be fully integrated and migrated to Jupiter's scalable
operating platforms, which have benefited from substantial recent investment.

 

§ Clear and well-designed integration plan to deliver cost savings whilst
ensuring stability, overseen by Jupiter's experienced management team.

 

§ The Enlarged Group will operate under the Jupiter brand.

 

§ One-off and integration costs estimated to be £40-45 million,
substantially all of which are expected to be incurred in the first 12 months
post-Completion.

 

Recommendation

The Jupiter Board has received financial advice from Fenchurch Advisory
Partners LLP and J.P. Morgan Cazenove in relation to the Acquisition. In
providing its financial advice to the Jupiter Board, Fenchurch Advisory
Partners LLP and J.P. Morgan Cazenove have relied upon the Jupiter Board's
commercial assessment of the Acquisition. The Jupiter Board considers the
Acquisition to be in the best interests of Jupiter and Jupiter Shareholders as
a whole.

 

Andrew Formica, Chief Executive of Jupiter, said: "This is an exciting
acquisition that enhances our position as a leading UK asset manager, provides
increased scale and diversification into attractive product areas, and creates
stronger future growth prospects for the business. It is also consistent with
our strategic priorities, adding strong investment talent with a similar
culture and investment philosophy.

"The addition of Merian is compelling for all stakeholders. With this
acquisition, our business will benefit from an increased capacity to attract,
develop and retain high quality talent, backed by further investment in our
platform and technology. In turn, we will be able to offer a wider choice of
strongly performing active investment strategies to our clients, while
shareholders will benefit from a highly earnings accretive deal delivered
through substantial cost synergies."

Mark Gregory, Chief Executive of Merian, said: "Jupiter is a great strategic
and cultural fit with our business. It has a market leading brand with a clear
focus on high conviction, active asset management which is entirely consistent
with our own. I believe the enlarged business will be more strongly positioned
to offer greater choice and investment performance to clients and continue to
meet clients' ever-evolving needs."

 

Chris Parkin, Managing Director of TA Associates, said: "We look forward to
becoming a long-term shareholder and partner with Jupiter once again. This is
an exciting new chapter for Merian's talented investment team. Our substantial
stake in the combined firm underlines our belief that this transaction will
deliver significant strategic benefits and returns to shareholders."

 

4.   Jupiter trading update

Jupiter also today releases a trading update with respect to its draft
unaudited results for the financial year ended 31 December 2019:

§ Underlying Profit Before Tax 11  of approximately £163 million (FY18:
£183 million)

o  Statutory Profit Before Tax of approximately £151 million (FY18: £179
million)

 

§ Net management fees of approximately £370 million (FY18: £396 million)

 

§ AUM of £42.8 billion as at 31 December 2019 (31 December 2018: £42.7
billion)

o  £37.6 billion mutual funds (31 December 2018: £36.9 billion)

o  £4.8 billion segregated mandates (31 December 2018: £4.6 billion)

o  £0.4 billion investment trusts (31 December 2018: £1.2 billion)

 

§ FY19 net outflows of £4.5 billion include:

o  £2.0 billion net inflows into Jupiter's Fixed Income strategy

o  £4.3 billion net outflows from Jupiter's European Growth strategy,
principally within the UK and Continental Europe

o  £1.0 billion net outflows from Jupiter's Developed Market Equities
strategies

 

§ The Jupiter Board's ordinary dividend policy remains unchanged 12 . No
special dividend will be declared for the financial year ended 2019 as Jupiter
balances investment for long-term growth with distribution to Jupiter
Shareholders. The Jupiter Board's priority continues to be to maintain its
capital strength, including a robust surplus over regulatory capital
requirements and it remains committed to returning surplus regulatory capital
in excess of needs to Jupiter Shareholders, aligned to its capital allocation
framework.

 

Information on Jupiter

Jupiter is an independent, high conviction, active asset management business,
managing mutual funds, segregated mandates and investment trusts on behalf of
individuals and institutions across the UK and internationally. Jupiter's
primary purpose is to help clients achieve their long-term investment
objectives through delivering superior returns after all fees on client
assets. Asset classes covered by Jupiter's funds include equities, fixed
income, multi-asset, multi-manager and alternatives (including absolute return
funds).

Jupiter is a market leading fund manager in the UK mutual fund market based on
the size of its AUM and gross sales, its strong investment performance track
record, the strength of its brand and presence in key distribution channels.
As at 31 December 2019, approximately 88 per cent. of Jupiter's AUM was in
mutual funds, the majority of which are open-ended funds directed towards
investors through intermediated distribution channels in the UK, EMEA, Asia
and Latin America. In addition, Jupiter provides investment management
services to institutional clients and investment trusts. Jupiter has offices
in London, Hong Kong, Singapore, Austria, Germany, Italy, Luxembourg, Spain,
Sweden and Switzerland.

As at 31 December 2019, Jupiter had approximately £42.8 billion of AUM.

 

Information on Merian

Merian is an independent, global asset management firm which utilises an
active high-conviction investment strategy. Merian distributes its products to
wholesale, retail and institutional investors in the UK, EMEA, the Americas
and Asia. Merian provides world-class investment expertise across virtually
all major asset classes, in addition to highly-regarded capabilities in a
number of specialist areas, offering a broad range of fundamental and
systematic active fund strategies, with the largest strategies being global
equities and UK equities. In addition, Merian has strong capabilities in fixed
income, European equities, global emerging market equities, alternatives and
global asset allocation.

Merian's purpose and objective is to help its clients meet their long-term
financial objectives and aspirations by investing their assets in a
responsible way and delivering sustainable value to them. In order to meet the
high expectations of its clients and their advisers, Merian focuses on
identifying and maintaining intelligent and repeatable ways in which to
generate positive investment outcomes, and it approaches this work in a way
that enables it to have a positive impact on its clients, employees and
society through the implementation of its "responsible business principles".

As at 31 December 2019, Merian had AUM of £22.4 billion.

 

General

Completion is subject to the satisfaction (or, where permitted, waiver) of
certain conditions, including relevant regulatory approvals and the approval
of the Acquisition by Jupiter Shareholders at the General Meeting. The Jupiter
Board will enter into irrevocable undertakings to vote in favour of the
resolutions to approve the Acquisition at the General Meeting. The Circular
(including the notice convening the General Meeting), the Prospectus and the
Debt Prospectus in respect of the issuance of Tier 2 debt will be published
and, where applicable, sent to Jupiter Shareholders in due course. The timing
of certain of the conditions to Completion is uncertain given the involvement
of third parties, including relevant regulators, but it is currently expected
that Completion will occur in the second half of 2020, with the earliest
expected completion date being 1 July 2020.

Presentation to analysts and investors

A presentation for analysts and investors will be held this morning at 09:30am
at the Zig Zag Building, 70 Victoria Street, London SW1E 6SQ.

The presentation will also be accessible via a live audiocast available at
https://secure.emincote.com/client/jupiter/jfm016
(https://secureweb.jpmchase.net/readonly/https:/eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fsecure.emincote.com%2Fclient%2Fjupiter%2Fjfm016&data=02%7C01%7Ctracy.rampling%40jupiteram.com%7Cf5eb155ef2e941342a7e08d7a8ba70be%7C70e1a0b75bf5416b96c4f244fca5ae53%7C0%7C0%7C637163391541321009&sdata=tqTSdeTHjtP92wIeVGfupIwxpnstDYE8%2BzkxIez6Rzk%3D&reserved=0)

 

Enquiries

 Jupiter Fund Management plc                                     +44 (0) 20 3817 1000
 Andrew Formica, Chief Executive
 Wayne Mepham, Chief Financial Officer
 Alex Sargent (Investor Relations)                               +44 (0) 20 3817 1534
 Despina Constantinides (Media Relations)                        +44 (0) 20 3817 1278

 Fenchurch Advisory Partners   LLP                               +44 (0) 20 7382 2222
 (Lead Financial Advisor)
 Vincent Bounie
 Malik Karim
 Philip Evans

 J. P. Morgan Cazenove                                           +44 (0) 20 7742 4000
 (Joint Financial Advisor and Joint Corporate Broker)
 Edward Squire
 Andrew Stockdale

 Numis                                                           +44 (0) 20 7260 1000
 (Joint Corporate Broker)
 Charles Farquhar
 Stephen Westgate

 Powerscourt                                                     +44 (0) 20 7250 1446
 (Financial Communications Advisor to Jupiter)
 Justin Griffiths
 Victoria Heslop

 

The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom may be restricted by law and therefore any
persons who are subject to the laws of any jurisdiction other than the United
Kingdom should inform themselves about, and observe, any applicable
requirements. This announcement has been prepared for the purposes of
complying with the Listing Rules and the 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 any jurisdiction
outside of the United Kingdom.

This announcement is not intended to, and does not constitute, or form part
of, an offer to sell or an invitation to purchase or subscribe for any
securities or a solicitation of any vote or approval in any jurisdiction. This
announcement does not constitute a prospectus or a prospectus equivalent
document. Jupiter Shareholders are advised to read carefully the formal
documentation in relation to the Acquisition once it has been despatched. Any
response to the proposals should be made only on the basis of the information
in the formal documentation to follow.

 

Forward-looking statements

Certain statements in this announcement are, or may be deemed to be,
"forward-looking statements". Forward-looking statements are prospective in
nature and are not based on historical facts, but rather on current
expectations and projections of the management of Jupiter and Merian about
future events, and are therefore subject to risks and uncertainties which
could cause actual results to differ materially from the future results
expressed or implied by the forward-looking statements.

The forward-looking statements contained in this announcement include
statements relating to the expected effects of the Acquisition on Jupiter and
Merian or the Enlarged Group (including their future prospects, developments
and strategies), the expected timing and scope of the Acquisition and other
statements other than historical facts. Often, but not always, forward-looking
statements can be identified by the use of forward-looking words such as
"plans", "expects" or "does not expect", "is expected", "is subject to",
"budget", "projects", "strategy", "scheduled", "estimates", "forecasts",
"intends", "anticipates" or "does not anticipate", or "believes", or
variations of such words and phrases or statements that certain actions,
events or results "may", "could", "should", "would", "might" or "will" be
taken, occur or be achieved. Although Jupiter and Merian believe that the
expectations reflected in such forward-looking statements are reasonable,
Jupiter and Merian can give no assurance that such expectations will prove to
be correct. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. There are a number of factors that could cause
actual results and developments to differ materially from those expressed or
implied by such forward-looking statements.

Neither Jupiter and Merian, nor any of their respective associates or
directors, officers or advisers, provides any representation, assurance or
guarantee that the occurrence of the events expressed or implied in any
forward-looking statements in this announcement will actually occur. You are
cautioned not to place any reliance on these forward-looking statements. Other
than in accordance with their legal or regulatory obligations, neither Jupiter
nor Merian is under any obligation, and Jupiter and Merian expressly disclaim
any intention or obligation, to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.

 

No profit forecasts, estimates or quantified financial benefits statements

No statement in this announcement is intended as a profit forecast, profit
estimate or quantified financial benefits statement for any period and no
statement in this announcement should be interpreted to mean that earnings or
earnings per share for the Enlarged Group, Jupiter and/or Merian for the
current or future financial years would necessarily match or exceed the
historical published earnings or earnings per share of Jupiter or Merian.

Rounding

Certain figures included in this announcement have been subjected to rounding
adjustments. Accordingly, figures shown for the same category presented in
different tables may vary slightly and figures shown as totals in certain
tables may not be an arithmetic aggregation of figures that precede them.

Disclaimer

J.P. Morgan Securities plc, which conducts its UK investment banking business
as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"), and which is authorised in
the United Kingdom by the Prudential Regulation Authority (the "PRA") and
regulated by the PRA and the FCA, is acting as financial adviser exclusively
for Jupiter and no one else in connection with the Acquisition and will not
regard any other person as its client in relation to the Acquisition and will
not be responsible to anyone other than Jupiter for providing the protections
afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for
providing advice in relation to the Acquisition or any other matter or
arrangement referred to herein.

Fenchurch Advisory Partners LLP ("Fenchurch"), which is authorised and
regulated by the FCA in the UK, is acting as lead financial adviser
exclusively for Jupiter and no one else in connection with the Acquisition and
will not be responsible to anyone other than Jupiter for providing the
protections afforded to clients of Fenchurch or its affiliates, or for
providing advice in relation to the Acquisition or any other matters referred
to in this Announcement.

 

APPENDIX I

OTHER PRINCIPAL TERMS OF THE ACQUISITION

Principal agreements in connection with the Acquisition

SPA

On 17 February 2020, the SPA was entered into by Jupiter and the Sellers to
give effect to the Acquisition. Pursuant to the terms of the SPA, and subject
to the satisfaction of the conditions set out therein, the Sellers have agreed
to sell the entire issued and to be issued share capital of Merian to Jupiter.

 

Consideration

In consideration for the sale of the entire issued and to be issued share
capital of Merian to Jupiter, the Sellers will receive in aggregate 95,360,825
Consideration Shares.

 

The number of Consideration Shares to be issued has been calculated based on a
price of 388 pence per Consideration Share on the basis of the volume weighted
average price of a Jupiter Share over the period of 20 days ending on and
including 14 February 2020.

The Purchase Price Adjustment is payable as an amount in cash, which, if
triggered, is expected to be funded through the sale of a proportion of
Consideration Shares (but supported by a cash payment guarantee). The Purchase
Price Adjustment will be measured between the date of the General Meeting and
31 December 2021 such that if there is a reduction in Merian PPA AUM over that
period, the Purchase Price Adjustment value will be as follows:

 

§ zero if the AUM reduction is less than 15 per cent.;

§ the value of 5,154,639 Consideration Shares (being £20 million divided by
£3.88) if the AUM reduction is 15 per cent.;

§ the value of 10,309,278 Consideration Shares (being £40 million divided by
£3.88) if the AUM reduction is 25 per cent.; and

§ the value of 25,773,196 Consideration Shares (being £100 million divided
by £3.88) if the AUM reduction is 40 per cent.

The cash payment is expected to be funded through a sale of Consideration
Shares, with the proceeds arising from the sale (net of dealing costs) being
paid to Jupiter.

 

A linear interpolation will apply if the AUM reduction is an amount that falls
between the thresholds set out above. The reduction in Merian PPA AUM over the
period will be calculated based on the net impact of subscriptions and
redemptions only.

 

Any pre-tax profit retained by Jupiter in respect of performance fees earned
and accrued by Merian funds existing at the date of signing the SPA (and any
successor of such funds) for the period from Completion to 31 December 2021
will be applied to reduce the TA Group's liability, if any, to make a payment
in respect of the Purchase Price Adjustment.

 

Certain of Mintaka's payment obligations pursuant to the SPA and other
transaction documents, including any payment in respect of the net debt
adjustment and the Purchase Price Adjustment, are subject to a guarantee
provided by certain funds managed by TA.

 

Conditions

Completion is subject to the satisfaction (or, where permitted, waiver) of
certain customary conditions by 31 December 2020 (or any later date as Jupiter
and the Sellers may agree or as is determined in accordance with the terms of
the SPA). Such conditions include approval of the Acquisition by Jupiter
Shareholders at the General Meeting to be convened pursuant to the notice of
meeting to be set out in the Circular; the Consideration Shares having been
allotted and issued to the Sellers (subject only to Admission); and the FCA
and the London Stock Exchange having confirmed to Jupiter that the respective
applications for Admission have been approved and that Admission will become
effective. In addition, Completion is also conditional upon necessary
regulatory approvals having been obtained.

 

Warranties and indemnification

The SPA contains customary warranties and limitations for a transaction of
this type. Warranty and indemnity insurance has been obtained to provide
recourse in the event that a warranty is breached. In addition, the SPA
contains a post-Completion net debt adjustment whereby there will be a
pound-for-pound indemnification by Mintaka to Jupiter to the extent that the
Merian Group's actual net debt (the "Actual Net Debt") at Completion exceeds
an agreed target net debt figure (the "Target Net Debt", with any difference
between the Target Net Debt and the Actual Net Debt being the "Net Debt
Difference"). The Target Net Debt is £29 million (assuming Completion occurs
on 1 July 2020) but that increases to £35 million if Completion occurs after
the record date for the Jupiter 2020 interim dividend.

 

Conduct before Completion and termination rights

Mintaka and the Key Merian Management Shareholders have agreed to comply with
customary provisions relating to the conduct of Merian's business during the
period between the date of the SPA and Completion. The SPA may be terminated
by Jupiter in certain limited circumstances including a material breach of
certain provisions of the SPA and may also be terminated by the mutual
agreement of the Sellers and Jupiter.

 

Merian debt and Jupiter regulatory capital issuance

Jupiter will acquire all of Merian's assets and liabilities at Completion.
Jupiter will acquire Merian with Target Net Debt of approximately £29
million, with Merian's expected existing external gross debt of £162 million
to be repaid at or before Completion. If Completion occurs after the record
date for the Jupiter 2020 interim dividend, the Target Net Debt will be £35
million.

Jupiter intends to undertake an issuance of £50 million of Tier 2
subordinated debt, prior to Completion, thereby providing increased liquidity
and regulatory capital for the Enlarged Group. Jupiter intends to extend and
increase its revolving credit facility of £50 million, providing a total
liquidity surplus over Jupiter's liquidity requirements.

 

Restrictive Covenants

The Key Merian Management Shareholders and other Merian employees will be
subject to customary restrictive covenants in their employment agreements,
including non-solicit and non-compete obligations for the duration of their
employment by the Enlarged Group and for a period following termination of
employment. The SPA also contains customary restrictions to prevent the Key
Merian Management Shareholders from competing with the business of Jupiter, or
soliciting Jupiter employees, customers or clients, in each case, for a period
of two years following Completion.

 

Relationship Agreement

Jupiter has entered into a relationship agreement with Mintaka (a fund advised
by TA), as the direct shareholder of Jupiter, and TA, as the indirect
shareholder of Jupiter (the "Relationship Agreement") which will, conditional
on Admission and for such time as Mintaka, together with any member of the TA
Group holds in aggregate 10 per cent. or more of the issued share capital of
the Enlarged Group, regulate the on-going relationship between Jupiter,
Mintaka and TA following Admission.

The Relationship Agreement contains customary provisions to ensure that
Jupiter is independent for the purposes of the Listing Rules and includes
undertakings from Mintaka and TA that: (i) transactions and arrangements
between them (and/or any of their respective affiliates) and Jupiter will be
conducted at arm's length and on normal commercial terms; (ii) neither of them
nor any of their respective associates will take any action that would have
the effect of preventing Jupiter from complying with its obligations under the
Listing Rules; and (iii) neither of them nor any of their respective
associates shall propose or procure the proposal of a shareholder resolution
which is intended or appears to be intended to circumvent the proper
application of the Listing Rules.

Pursuant to the Relationship Agreement, TA will have the right to nominate one
non-executive director to the Jupiter Board for as long as Mintaka, together
with any member of the TA Group holds 10 per cent. or more of the issued share
capital of the Enlarged Group. The nominated director will be subject to
customary non-solicit and non-compete restrictions whilst he or she is a
member of the Jupiter Board and for a period of time after he or she has
ceased to be a Jupiter director.

 

Management Shareholders Lock-Up Agreements

Certain Key Merian Management Shareholders, have each entered into a share
lock-up agreement with Jupiter (the "Management Shareholders Lock-Up
Agreements") in respect of the Consideration Shares to be received by each
such Key Merian Management Shareholder at Completion. The Management
Shareholders Lock-Up Agreements are conditional upon Completion and restrict
the relevant Key Merian Management Shareholders from disposing of: (i) any of
the Consideration Shares for a period of 12 months following Completion; and
(ii) more than 25 per cent. of the Consideration Shares held by them
(including when aggregated with any previous disposals they have made) in the
period of three years following Completion.

Each of the Key Merian Management Shareholders subject to a Management
Shareholders Lock-Up Agreement will be permitted to dispose of Consideration
Shares with Jupiter's consent or in accordance with certain customary
exceptions including, but not limited to, disposals required by law, court
order or regulation, in order to participate in rights issues, in order to
accept a takeover offer or transfers pursuant to compromises or arrangements
with creditors or members which are sanctioned by the court. Disposals are
also permitted to fund amounts repayable to Merian, which amounts are not
material in the context of their respective holdings of Consideration Shares.

 

Deferred Earn Out

There will also be a deferred earn out plan for Key Merian Management
Shareholders of up to £20 million, payable in Jupiter shares on the 4(th) and
5(th) anniversary after Completion for growing and retaining revenues in their
investment strategies, subject to continued employment. In addition, TA will
bear the cost of an additional amount of Deferred Earn Out up to £10 million.

Jupiter has the benefit of an indemnity from TA in an amount of up to an
additional £10 million in relation to certain cash payments to be made on the
third anniversary of Completion (subject to the satisfaction of certain
conditions under the Deferred Earn Out) in respect of the Deferred Earn Out
with the amount of any performance fees earned and accrued by Merian funds
existing at the date of signing the SPA (and any successor of such funds) for
the period from Completion to 31 December 2021 being offset against that
indemnity obligation to the extent not utilised in relation to the AUM
Purchase Price Adjustment.

 

TA Lock-Up Agreement

Mintaka (a fund advised by TA) has entered into a share lock-up agreement with
Jupiter (the "TA Lock-Up Agreement") in respect of the Consideration Shares to
be received by Mintaka at Completion. The TA Lock-Up Agreement is conditional
upon Completion and restricts Mintaka from disposing of any of the
Consideration Shares received at Completion for a period of 24 months
following Completion. During that period, Mintaka will be permitted to dispose
of Consideration Shares with Jupiter's consent or in accordance with certain
customary exceptions including, but not limited to, disposals required by law,
court order or regulation, in order to participate in rights issues, in order
to accept a takeover offer or transfers pursuant to compromises or
arrangements with creditors or members which are sanctioned by the court.
Mintaka is also permitted to dispose of Consideration Shares to the extent
required to fund any payment in relation to the AUM related Purchase Price
Adjustment and/or payments under indemnities provided by Mintaka in favour of
Jupiter under other transaction documents and/or any payment in relation to
the net debt arrangements under the SPA as referred to above.

The TA Group will also be restricted from increasing its shareholding in
Jupiter beyond that received at Completion.

Following the end of the lock-up period and except with Jupiter's prior
written consent, or in certain other limited circumstances, Mintaka is
restricted from disposing of, in any rolling three-month period, such number
of Consideration Shares as is equal to or more than 5 per cent. of the total
number of Jupiter Shares in issue at such time, subject always to a
restriction on disposing of, in any rolling six-month period, such number of
Consideration Shares as is equal to more than 7.5 per cent. of the total
number of Jupiter Shares in issue at such time.

 

Combined financial information 13 

                                         Jupiter          Merian            Combined 14 

                                         (A)              (B)               (A + B)
 AUM (as at 31 December 2019)            £42.8 billion    £22.4 billion     £65.2 billion

      Of which GEAR                      n.a.             £2.9 billion      £2.9 billion
 Net flows (FY19)                        £(4.5) billion   £(8.9) billion    £(13.4) billion

      Of which GEAR                      n.a.             £(6.2) billion    £(6.2) billion
 Net revenue (FY19)                      £379 million     £170 million      £550 million
      Of which net management fees       £370 million     £167 million      £537 million
 Run-rate net management fee margin 15   82bps            62bps             76bps
 EBITDA (FY19) 16                        £168 million     £66 million       £234 million

 

Capital and liquidity

In order to maintain capital strength, including a robust surplus over
regulatory capital requirements, Jupiter intends to issue £50 million of Tier
2 subordinated debt ahead of Completion. The resulting regulatory capital
surplus is estimated to be £70-100 million 17 . Merian's existing external
gross debt of £162 million is to be repaid at or before Completion, with
Jupiter acquiring Merian with Target Net Debt of £29 million but with Target
Net Debt increasing to £35 million if Completion occurs after the record date
for the Jupiter 2020 interim dividend.

 

Dividend and dividend policy

The Jupiter Board's ordinary dividend policy remains unchanged 18 . No special
dividend will be declared for the financial year ended 2019 as Jupiter
balances investment for long-term growth with distribution to Jupiter
Shareholders. The Jupiter Board remains committed to returning surplus capital
in excess of needs to Jupiter Shareholders, aligned to its capital allocation
framework.

Further details of the terms and conditions of the Acquisition, including
further details of the agreements and arrangements referred to above, will be
set out in the Circular.

 

Acquisition timetable

The Acquisition is subject to a number of conditions including:

§ Jupiter shareholder approval: the Acquisition qualifies as a Class 1
transaction for Jupiter under the Listing Rules. Accordingly, the approval of
Jupiter Shareholders is required and will be sought at the General Meeting
expected to take place in April 2020. The Circular containing the notice
convening the General Meeting will be published in due course.

§ Allotment, issue and admission of the Consideration Shares: Jupiter will
publish the Prospectus in connection with Admission in due course; and

§ Regulatory approvals: FCA and certain other regulatory change of control
approvals are required in connection with the Acquisition as well as certain
"controller" approvals in respect of the TA Group's holding of Consideration
Shares. Regulatory approvals are expected to be obtained shortly prior to
Completion.

The timing of certain of the conditions to Completion is uncertain given the
involvement of third parties, including relevant regulators, but it is
currently expected that Completion will occur in the second half of 2020, with
the earliest expected completion date being 1 July 2020. Following Completion,
Merian will be fully consolidated into Jupiter.

 

 

APPENDIX II

SOURCES OF INFORMATION AND BASES OF CALCULATION

In this Announcement:

1.   Unless otherwise stated:

 

·   financial information with respect to the year ended 31 December 2019
relating to Jupiter is unaudited at the time of this announcement; and

 

·   financial information with respect to the year ended 31 December 2019
relating to Merian is unaudited at the time of this announcement.

 

2.   The volume weighted average price of a Jupiter Share is calculated by
reference to:

 

·   the Closing Price of Jupiter Shares on each day of the 20 Business Day
period prior to and including 14 February 2020, being the latest practicable
date prior to the publication of this announcement; and

·      the volume traded in Jupiter Shares on each day of the 20
Business Day period from 20 January 2020 to 14 February 2020.

 

3.   At the close of business on 14 February 2020, being the latest
practicable date prior to the publication of this announcement, Jupiter had in
issue 457.7 million Jupiter Shares.

 

4.   The 95,360,825 new Jupiter Shares to be issued to the shareholders in
Merian is calculated by reference to:

 

·    the volume weighted average price per Jupiter Share for the 20 day
trading period to and including 14 February 2020, being the latest practicable
date prior to the publication of this announcement, of 388 pence; and

·     the total upfront consideration paid for the entire issued and to
be issued share capital of Merian of £370 million.

 

5.   The implied Merian ownership of the enlarged share capital of Jupiter
is calculated by reference to:

 

·     the total number of Jupiter Shares in issue on 14 February 2020,
being the latest practicable date prior to the publication of this
announcement; and

·      the total number of Consideration Shares to be issued to Merian.

 

6.   The implied Key Merian Management Shareholders' ownership of the
enlarged share capital of Jupiter is calculated by reference to:

 

·      the Key Merian Management Shareholders' ownership of Merian of 3
per cent.; and

·      the implied Merian ownership of the enlarged share capital of
Jupiter, as calculated above.

 

7.   Unless otherwise stated, all Closing Prices and volumes for Jupiter
Shares are provided by Bloomberg.

 

8.   The volume weighted average price per Jupiter Share for the 20 day
trading period to and including 14 February 2020 is derived using the Closing
Prices and volumes from the relevant dates from data provided by Bloomberg.

 

9.   Combined financials as laid out in this announcement are calculated as
the sum of the relevant financial metrics relating to Jupiter with respect to
the year ended 31 December 2019 and the relevant financial metrics relating to
Merian with respect to the year ended 31 December 2019.

 

APPENDIX III

DEFINITIONS

 "Acquisition"                                 the proposed acquisition of Merian by Jupiter;
 "Admission"                                   the admission of the Consideration Shares to listing on the premium segment of
                                               the Official List and to trading on the London Stock Exchange's main market
                                               for listed securities;
 "AUM"                                         assets under management;
 "Business Day"                                a day, not being a public holiday, Saturday or Sunday, on which banks in

                                               London are open for normal business;
 "Circular"                                    the circular to be issued by Jupiter setting out further details of the
                                               Acquisition and containing a notice convening the General Meeting;
 "Closing Price"                               the closing middle market price of a Jupiter Share as derived from the Daily
                                               Official List on any particular date;
 "Completion"                                  completion of the Acquisition;
 "Consideration Shares"                        the 95,360,825 newly issued Jupiter Shares to be issued to the Sellers as
                                               consideration for the Acquisition, in accordance with the terms of the SPA;
 "Daily Official List"                         the daily official list of the London Stock Exchange;
 "Debt Prospectus"                             the listing document in relation to the issuance of Tier 2 subordinated debt
                                               instruments to be issued by Jupiter, or another member of the Jupiter Group;
 "Enlarged Group"                              the enlarged group of companies which will, following Completion, comprise the
                                               Jupiter Group and the Merian Group;
 "Exceptional Items"                           items of income or expenditure that are significant in size and which are not

                                             expected to repeat over the short to medium term;
 "FCA"

                                               the Financial Conduct Authority;
 "General Meeting"                             the general meeting of shareholders of Jupiter to be convened to approve the
                                               Acquisition;
 "Jupiter"                                     Jupiter Fund Management plc or the Jupiter Group, in each case as the context
                                               may require;
 "Jupiter Board"                               the board of directors of Jupiter Fund Management plc;
 "Jupiter Group"                               Jupiter Fund Management plc and its subsidiaries and subsidiary undertakings
                                               from time to time, and where the context permits, each of them;
 "Jupiter Shareholder(s)"                      holders of Jupiter Shares;
 "Jupiter Share(s)"                            the ordinary shares of two pence each in the capital of Jupiter Fund
                                               Management plc;
 "J.P. Morgan Cazenove"                        J.P. Morgan Securities plc, which conducts its UK investment banking business
                                               as J.P. Morgan Cazenove;
 "Key Merian Desks"                            the following investment teams within the business of the Merian Group at
                                               Completion: (a) the "UK Small and Mid Cap. (SMID)" desk currently led by
                                               Daniel Nickols; (b) the "Systematic" desk currently led by Ian Heslop; and (c)
                                               the "UK All Cap" desk currently led by Richard Buxton;
 "Listing Rules"                               the listing rules, made by the Financial Conduct Authority under Part 6 of the
                                               Financial Services and Markets Act 2000, as amended from time to time;
 "Management Shareholders Lock-Up Agreements"  the share lock-up agreements to be entered into between Key Merian Management
                                               Shareholders and Jupiter on 17 February 2020 and conditional upon Completion;
 "Merian"                                      Merian Global Investors Limited or the Merian Group, in each case as the
                                               context may require;
 "Merian PPA AUM"                              the AUM attributable to funds managed by the Key Merian Desks as at the date
                                               of the General Meeting and including certain net flows over the period, but
                                               excluding market movements;
 "Merian Group"                                Merian and its subsidiaries and subsidiary undertakings from time to time and
                                               where the context permits, each of them;
 "Mintaka"                                     Mintaka LP, a fund advised by TA;
 "Key Merian Management Shareholders"          Richard Buxton, Ian Heslop, Amadeo Alentorn Farre, Daniel Nickols and Richard
                                               Watts;
 "Operating Margin"                            operating profit (before Exceptional Items) divided by net revenue;
 "Participant Sellers"                         the beneficial owners of certain shares in Merian currently registered in the
                                               name of Zedra Trust Company;
 "Prospectus"                                  the prospectus to be published by Jupiter in relation to the Admission;
 "Purchase Price Adjustment"                   has the meaning given to it on page 2 of this announcement, with further
                                               detail in Appendix I;
 "Relationship Agreement"                      the relationship agreement to be entered into between Jupiter, Mintaka LP and
                                               TA on 17 February 2020 and conditional upon Completion;
 "Sellers"                                     Mintaka, the Key Merian Management Shareholders, Zedra Trust Company and the
                                               Participant Sellers;
 "SPA"                                         the sale and purchase agreement entered into between Jupiter and the Sellers
                                               on 17 February 2020;
 "TA"                                          TA Associates Management LP or the TA Group, in each case as the context may
                                               require;
 "TA Group"                                    TA and its subsidiaries and subsidiary undertakings from time to time and
                                               where the context permits, each of them;
 "TA Lock-Up Agreement"                        the share lock-up agreement to be entered into between Mintaka LP and Jupiter
                                               on 17 February 2020 and conditional upon Completion;
 "Underlying EPS"                              Underlying Profit Before Tax less tax at the UK headline rate divided by the
                                               number of shares in issue, time weighted for share issued in the year from the
                                               date of issue;
 "Underlying Profit Before Tax"                profit before tax before Exceptional Items excluding amortisation arising from
                                               acquisitions; and
 "Zedra Trust Company"                         Zedra Trust Company, a professional trustee company appointed to hold certain
                                               shares in Merian as nominee for certain employees and former employees of the
                                               Merian Group.

 

 1  As at 31 December 2019

 2  Relative to Jupiter's expected standalone financial performance for the
same periods

 3  In addition, TA has agreed to bear the costs of an additional deferred
earn out up to £10m for Key Merian Management Shareholders

 4  Estimated as at 1 July 2020

 5  3-year mutual fund performance to December 2019

 6  10-year mutual fund performance to December 2019

 7  Combined 3-year mutual fund performance to December 2019

 8  Source: The Investment Association

 9  Relative to Jupiter's expected standalone financial performance for the
same periods

 10  Operating profit (before Exceptional Items) divided by net revenue

 11  Before Exceptional Items

 12  Subject to Board approval

 13  FY19 draft financials of both parties are unaudited at the time of this
announcement

 14  Combined financials represent the sum of relevant Jupiter and Merian
financial information

 15  Based on net management fee rate of the AUM as at 31 December 2019

 16  EBITDA stated before Exceptional Items

 17  Estimated as at 1 July 2020

 18  Subject to Board approval

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
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