Financial services company JPMorgan Chase & Co. (JPM) has agreed to buy Cazenove Group Limited's 49.99% stake in their joint venture J.P. Morgan Cazenove, an investment bank, for GBP 5.35 per share. The deal values Cazenove at GBP 1 billion and has an implied value of GBP 2 billion.
Cazenove's ordinary shareholders will receive GBP 5.35 per share, consisting of GBP 5.10 upon closing for the sale of their shares and a dividend of 25 pence per share in December 2009. The deal is expected to be completed in early 2010.
JPMorgan and Cazenove said the five-year-old partnership would become a wholly owned part of J.P. Morgan. The business, well-known for being the Queen's broker, will continue to operate under the J.P. Morgan Cazenove brand and key employees will retain their roles.
David Mayhew will continue as Chairman of J.P. Morgan Cazenove, while Naguib Kheraj, chief executive officer of J.P. Morgan Cazenove, will oversee the integration.
Ian Hannam will continue as Chairman of Capital Markets, while Laurence Hollingworth will be Head of UK Equity Capital Markets. Charles Harman will continue to be the chief of UK Investment Banking and Alan Carruthers will become Head of Cash Equities for Europe, the Middle East and Africa. David Knox will be Head of UK Equity Research and Deputy Head of European Equity Research, the companies added.
Reports had indicated on Sunday that JPMorgan would shortly strike a deal for the 190-year-old stockbroker. The partnership with Cazenove gave JPMorgan an option to buy the rest of its investment banking partner by February of 2010. It also carried an option for Cazenove's 1,500 owners to force a full sale to JPMorgan.
At the inception of the joint venture, J.P. Morgan contributed its UK investment banking operations and paid GBP 159 million in cash in return for a shareholding of 50.01% in J.P. Morgan Cazenove. The investment proved worthy and the joint venture did roaring business in the five years, despite the economic slowdown.
The companies noted today that there would be little change to the activities of the joint venture's Corporate Finance business, which has already been operating closely with J.P. Morgan in the UK, where it is the No. 1 Corporate Broker. It will remain focused on providing strategic advice to large and small UK clients, in addition to raising capital and delivering risk management solutions.
In the Cash Equities business, the joint venture has so far operated separately from J.P. Morgan. Once the transaction is complete, J.P. Morgan will combine the joint venture's Cash Equities and Research operations with its existing franchise in Europe, the Middle East and Africa and run the enlarged business under the J.P. Morgan Cazenove banner.
Naguib Kheraj, J.P. Morgan Cazenove's Chief Executive Officer, added: "For all corporate clients our business will remain fundamentally unchanged - same people, same client approach, and same brand. In institutional equities, the combination of the businesses will enable us to improve and broaden our service to clients."
The Directors of Cazenove, who are being advised by Lazard, unanimously recommended that shareholders vote in favor of the transaction.
Senior figures at Cazenove, as well as many high-profile former employees, reportedly stand to make huge gains from the sale. David Mayhew, the chairman who joined the group 40 years ago, is set to receive the largest pay-out, of GBP 18 million-GBP 19 million. Michael Power, who took over as finance director in 2001 and joined Cazenove's board five years ago, and Alan Carruthers, who has been head of equities for six years, are in line for GBP 10 million and GBP 15 million, respectively.
More than half of Cazenove's shares are owned by about 80 senior individuals, while about 25% is owned by other staff and 10% is owned by institutions. Cazenove stock is not publicly traded.
The deal enables JPMorgan to expand in Europe, an increasingly important source of revenue for the bank. The company recently reported that its Investment Bank division generated third-quarter net income of $1.9 billion, with its revenue rising 85% to $7.5 billion in the quarter.
JPM closed Wednesday's regular trade at $43.38, up from the previous close of $43.16, on 20.42 million shares.
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