UPDATE: Henderson Hikes UK Fund Management Position With New Star

Henderson Group PLC (HGI.LN) Friday moved to strengthen its position in the U.K. retail fund-management industry, with its proposed acquisition of embattled rival New Star Asset Management PLC (NSAM.LN), which would result in the new firm having GBP59.5 billion assets under management.

Henderson said it is a "strategically compelling acquisition," which would significantly increase its scale and distribution in the U.K. retail fund-management market, which has been hit from the global economic turmoil and led to major consolidation moves in the sector.

The enlarged group would be ranked the fifth-largest U.K. retail fund manager by funds under management.

To help fund the agreed deal, which has a total enterprise value of GBP115 million, Henderson plans to raise GBP65 million from a share placement and issue. The remaining GBP50 million will come from internal cash reserves.

The tie-up will result in integration costs of approximately GBP31 million after tax, and is expected to be boost earnings by 2010, according to Henderson.

At present, Henderson and New Star have assets under management of GBP49.5 billion and GBP10 billion, respectively.

Henderson also announced that it would book a profit before tax and non-recurring items of approximately GBP80 million for 2008.The group plans to pay a final dividend of 4.25 pence a share, resulting in a total dividend of 6.1 pence a share for 2008, steady from a year earlier.

Shore Capital analyst Danny Clarke said the acquisition and terms were "broadly as expected," although "slightly expensive versus recent deals" such as the Aberdeen Asset Management and Credit Suisse (CS) tie-up and GLG Partners Inc. (GLG) and Societe Generale SA (13080.FR) union.

"Price-adjusting mechanism is positive," although there are concerns over integration and funds under management retention and performance, he added.

Henderson's current trading is "slightly better than expected," said Clarke, who has a "solid hold" on the stock.

At 0809 GMT, Henderson shares were up 7 pence, or 11%, at 69 pence in a slightly lower London market. New Star shares were at 2 pence, up fractionally.

New Star, one of the better-known names with the public in asset management, began experiencing liquidity problems late last year and said it was exploring alternatives for its business, including a possible sale. It disclosed Monday that it was in talks with Henderson that could lead to an offer for the firm.

The deal is subject to approval from both set of shareholders, the U.K.'s Finance Services Authority and other regulatory bodies. Henderson said it hopes to complete the purchase by December.

Company Web site: www.henderson.com

www.newstaram.com

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com