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BMO makes offer for Britain’s F&C Asset Management

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Bank of Montreal is eyeing a $1.3 billion acquisition of British fund firm F&C Asset Management, with the two parties already in “advanced discussions.”

On Monday F&C said it received an indicative offer from BMO (BMO-T)(BMO-N), adding that the Canadian bank is likely to put in a firm bid worth 120 pence per share, and pay in cash.

F&C’s shares shot 25 percent higher on the news, but before the announcement they shed 15 percent of their value in the past year. The weakness resulted from the asset manager’s soft earnings performance, something that has dogged the company for the past few years.

Saddled with debt and struggling to staunch the outflow of strategic partners, such as insurance and pension funds for whom it manages money, F&C announced an extensive restructuring program in 2011. The plan included slashing costs to boost margins and by July 2013, chief executive officer Richard Wilson said the turnaround was finally bearing fruit.

F&C “is in a stronger financial position and we can start looking forward to the inflection point,” he told investors on a conference call last summer.

The negotiations between BMO and F&C, which has assets under management worth £90-billion ($136-billion), do not guarantee that a deal will be struck. British companies operate under a different set of disclosure rules that require them to be more forthcoming when acquisition rumours start to circulate.

However, should a deal be inked, it will add to a growing list of asset management deals Canadian banks recently struck outside their home country. Since 2010 the list of acquisitions include: Royal Bank of Canada (RY-T) buying London’s BlueBay Asset Management; Toronto-Dominion Bank (TD-T) buying Epoch Holding Corp. in the U.S.; and Canadian Imperial Bank of Commerce (CM-T) buying a 41-per-cent stake in American Century Investments from JPMorgan Chase & Co (JPM-N).

BMO itself has been busy building up its wealth management arm around the world – but recently acknowledged that this activity hasn’t received much attention from investors.

At a conference earlier this month, chief executive officer Bill Downe said that BMO has invested in wealth management consistently since the downturn and that “the businesses that we have in Europe, the distribution of wealth that we have now in the Middle East, the strength of the business in Mainland China and Hong Kong, in Singapore, all ties into a much better global wealth platform than I think many people appreciate.”

Downe also noted that wealth management will continue to be a focus for his bank, particularly as Canadians slow their borrowing at home, limiting growth in the retail banking business.

BMO declined to comment Monday. “We have no further comment on the F&C Asset Management PLC announcement,” a spokesperson wrote in an e-mail. “The announcement was put out with our consent in accordance with U.K. regulatory requirements.”

Any deal would boost the earnings profile of BMO’s wealth management arm, which was a bright spot in 2013, earning an $834-million profit, up 59 percent from 2012.

56 percent of the assets F&C manages are in fixed-income products, while 30 percent are in equities.

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