Fund management group Henderson Global Investors is in the final weeks of a merger that transforms the business into a true global player. Since demerging from AMP in 2003, Henderson has grown from a small no name investor into a recognised brand with a current capitalisation of $2.7 billion. Henderson will hold an Extraordinary General Meeting in London on 26th April 2017 to endorse the merger with Janus Capital Group who are also a global investment manager based in Denver Colorado. The merged group will be called Janus Henderson PLC and have funds under management of US$320 billion.
Quest has owned Henderson shares for a few years now. We know the stock well and have benefited from above average performance for 3 of the last 4 years. In 2016, Henderson fell 36% post Brexit. The collapse of the English Pound translated into a lower Australian share price. There are a number of things we like about this deal.
Firstly, Henderson rates well under our Q Stocks qualitative process. Capital investment is low in the funds business, there is inherent leverage to markets, low technical risk and good transparency. Management rates well too.
Henderson has diversified over the last decade and grown by acquisition however the merger takes the group to a new level globally. The global funds industry requires scale and this merger provides a diversification away from the UK and Europe. Nice timing too considering the Brexit uncertainty.
Total FUM moves from US$125 billion to US$320 billion with 53% of FUM being in the Americas. Henderson will delist in the UK and list on the NYSE on 30th May 2017. That takes away the vulnerability of being priced in Pounds, a factor that has held the stock back for months. Henderson is cum two dividends at the moment which seems to have been missed by most observers. A final dividend in relation to calendar 2016 is payable in May 2017 while a quarterly pre-merger dividend is yet to be quantified.
Regulatory capital actually falls as a result of this merger with the shift towards the US.
The Board of Janus Henderson is a combination of the two incumbents with Aussie boy Andrew Formica joining Dick Weil from Janus as joint CEO’s They will operate together in London for 3 years.
This deal will be supported at the EGM. Some UK holders will sell but US holders will arrive so we expect plenty of turnover in coming weeks. Janus is 20% owned by Japanese life insurer Dai-ichi who will be diluted by the deal. Dai-ichi have US$2 billion of FUM with Janus and have bought an option to re-establish a holding of up to 14% of the combined manager. Interestingly, it would be cheaper for Dai-ichi to buy the stock now in the market than exercise the option which is currently out of the money.
Henderson is a laggard in a strong market. It is historically a high beta stock but in the last 9 months it has flat lined while the ASX 300 has risen 15%. The merger has led to indifference from investors.
We think the indifference will shortly pass.