Ferret's Stock to Watch: HHG PLC 08:16, Monday, 13 December 2004
SHAREHOLDERS ADVISED TO SIT PAT UNTIL REWARDS HANDED OUT
Sydney - Monday - December 13: (RWE) ***********************************
OVERVIEW ********
They say Patience is a virtue.
Sooner or later, though, the company's fortunes had to turn after a 2003 year of disaster for parent AMP.
Now analysts in Britain and Australia are advising investors to sit tight as shareholders in both companies are about to receive their just rewards for sticking with the group.
On Friday HHG announced plans to sell its life insurance funds business for about $2.5 billion, most of which will be returned to shareholders.
HHG's chief executive Roger Yates will dispose of the Pearl, National Provident Life , NPIand London Life businesses to a UK private equity group which is part owned by American hedge expert Paul Tudor Jones.
The selling price is about $500,000 better than than that rejected for the UK offshoot last year.
Analysts are already speculating that the AMP's share of about $200 million will be added to other funds to give AMP shares a return of capital of perhaps 60c a share.
Shares of AMP rose 10c to $6.80 at the close of business on Friday while HG stock gained 11c to $1.35.
Following completion of the deal by the end of April, it is proposed that the majority of the proceeds be returned to shareholders in cash and that HG, which will comprise Enders Global Investors and To wry Law, be renamed Enders Group PC.
BENEFITS ********
Mr Yates outlined the following benefits for HHG shareholders.
Realisation of 1.025 billion pounds in cash (approximately 79 per cent of the embedded value at 30 June 2004)
* Return of approximately 875 million pounds of the cash to shareholders in exchange for the cancellation of shares
* Revised Investment Management Agreements with Henderson lobal Investors on a ten year term
* Transfer of 1.5 billion pounds in employee pension assets and liabilities, thereby leaving the Henderson Group with assets and liabilities only in respect of its past and present employees.
* Removal of exposure to the UK life insurance sector and its related regulatory, solvency, mortality and surrender risks
* Accelerated release of shareholder capital from Life Services, thereby unlocking value now that may otherwise be realised only over a longer period.
Commenting on the sale, HHG's Yates, said: "We have always said that HHG would deliver to shareholders through growth in Henderson Global Investors and the realisation of value in Life Services.
"This deal delivers on the second aspect of the strategy.
"It offers a good price in relation to embedded value; it provides certainty of outcome; it transfers significant pension liabilities; and it provides revenue protection for Henderson.
"The proposed combination of certainty, value and significant risk reduction delivers the right deal for shareholders."
Mr Yates added: "For staff and policyholders the sale is to a company whose core business focus is the management of closed life funds."
Just under a year ago on January 5, the Ferret wrote the following about HHG:
Ferret's views almost a year ago ----------------------------------
It's always a good sign to see the people who really know topping off their holdings.
The thought runs through an investor's mind that if these guys don't know what's going on then nobody does.
But you could be pardoned for being a bit cautious about the AMP and its UK offshoot HHG.
The group as a whole has had so many unexpected financial setbacks in the past that there is not much left to go wrong.
Just ask AMP shareholders who have lost a fortune in recent years when the shares at one stage stood at $18.
But according to AMP managing director Andrew Mohl the company has turned the corner, especially after hiving off its UK operation which had previously almost bled the company white.
Since HHG listing just before Christmas Mr Mohl has disclosed to the ASX that he has almost doubled his HHG shareholding after acquiring more than $200,000 worth of shares at 91c a share, well below the low shown on the details figures.
Managing director Mr Roger Yates bought 250,000 worth of shares while chairman Malcolm Bates acquired 100,000 stock.
In an AMP company statement at the same time Mr Mohl is reported as declaring the purchase showed a "vote of confidence" in the new company.
AMP holds about 10 per cent of HHG and is its biggest shareholder.
The initial split in the group's assets briefly lifted the value of total shareholder assets.
Creating HHG through a demerger was as follows: Shareholders existing investment in AMP became a separate investment in each of AMP Ltd and HHG PLC upon approval of the demerger.
Shareholders now own an investment in AMP in Australasia and HHG in the UK.
The HHG shares listed on the Australian Stock Exchange on Tuesday 23 December 2003.
The number of HHG shares received equaled the number of AMP shares held on Friday 19 December 2003
For example, if you held 100 AMP shares on 19 December, you will now hold 100 AMP shares and 100 HHG shares.
This was achieved through cancelling and subdividing AMP shares.
The ultimate outcome is that shareholders now hold the same number of HHG shares as AMP shares.
BACKGROUND **********
HHG Plc has two main divisions; Henderson, an investment manager with 69.4 billion pounds in assets under management; and Life Services, which comprises the life insurance and pension books of four life insurance companies, which are closed for new business.
HHG also owns Towry Law plc, a financial advisory group and has a 50 per cent in Virgin Money.
Henderson is an investment manager centred in London and operating throughout Europe, North America and Asia.
The company is one of the top ten UK-domiciled investment managers, based on global assets under management.
Henderson provides a broad range of actively managed investment products for institutional and retail investors, across several asset classes including equities, fixed income, private equity and property,
Out of Henderson's total assets 27.3 billion pounds or 39 per cent are assets of Life Services' life funds.
This division comprises the life insurance and pension books of Pearl Assurance plc, National Provident Life Limited, NPI Limited and London Life Limited - all about to be sold off.
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