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FIS locks up RSA assets for £240m

02 May 2002

Friends Ivory & Sime (FIS), the UK asset manager, was out to prove that biggest is best in the investment management sector when it almost doubled in size this week with the £240m acquisition of the fund management arm of Royal & SunAlliance.

"This transaction is transformational for FIS in terms of scale... propelling us into the top 10 active investment managers in the UK," said Howard Carter, chief executive of FIS.

The acquisition of Royal & SunAlliance's assets will increase FIS's assets under management from £34bn to £70bn.

The company expects the deal to improve its income streams both in terms of stabilising them and contributing additional revenue. It forecasts earnings to be enhanced in the first full financial year ending December 31, 2003, excluding the amortisation of goodwill and the one-off transaction cost.

Under the terms of the deal, FIS has agreed with Royal & SunAlliance to become investment manager of £36bn of funds of the UK life and general insurance funds of Royal & SunAlliance, under an exclusive 10 year contract.

The move by FIS, which is 67% owned by Friends Provident, has been received well by the market. "The transaction projects FIS into the asset management premier league," said Credit Suisse First Boston in a research report published on Wednesday. "FIS is now in a stronger position to attract profitable third party mandates."

This view was echoed by ING, which said that the purchase represents a good deal for FIS, but questioned the use of Friends Provident's capital. Friends Provident contributed a loan of £190m to FIS to fund the acquisition and ING is not convinced that this was the most effective use of the funds for Friends Provident's shareholders.

But CSFB disagrees. "We view the acquistion as a good use of Friends Provident's excess capital, which until this point, has been earning a return lower than the cost of capital," said the firm.

02 May 2002