$150m Deal Has Ring Of Success
The Age
Tuesday July 8, 2008
STOCKBROKING veterans Colin Bell and Brent Potts spoke last year about getting their two stockbroking businesses together, but it was a deal neither could afford. Now, as Bell Financial Group's executive chairman puts it, "we have a piggy bank and we have paper" following the December float, and Bell has unveiled a plan to outlay up to $150 million in cash and shares for Mr Potts' Southern Cross Equities over the next three years. The announcement of the deal, and accompanying positive profit outlook, vaulted Bell shares 19.5 ahead to $1.12 yesterday - although still well shy of their $2 issue price and about half the $2.49 peak in December. Bell also said that net profit for the six months to June 30 had almost halved, to $9million, reflecting the decline in the sharemarket and reduced activity. Managing director Alastair Provan had already warned of the crimped profit at Bell's May annual meeting. Bell, which owns Bell Potter Securities, has structured the acquisition of Southern Cross in such a way that the Sydney-based group must continue to perform for the next three years to get the maximum amount of money. The plan, which will need Bell shareholders' approval, is for an initial payment of $37.5million, of which $18.75million will be cash. That will mean Bell issuing 15million shares at $1.25 each. If Southern Cross performs as expected, Bell would eventually issue about 60 million shares, equivalent to 20% of the expanded company - although Bell Group Holdings, controlled by Colin and Lewis Bell and Mr Provan, would own more than 40% of the company and investment bank UBS a diluted 14.7%. Southern Cross, which acts for several high-profile clients such as Andrew Forrest and Solomon Lew, appears to have done what most other brokers can only dream of achieving in the past year - increase net profit. Figures accompanying the acquisition say the unaudited "normalised" net profit of Southern Cross in the year to June 30 was $19.6 million ($25million before "normalisation"), which is up more than 15% on the 2007 profit of $16.95million. Southern Cross' 18 shareholders have also done well over the past three years in terms of dividends, picking up at least $27.9 million in dividends since 2006, including two $4 million dividends in July and August last year. A pro forma consolidation of the two groups' accounts for the just-ended financial year gives them a combined $291.7 million of revenue and $47.4 million of net profit. The staggered payments not only mean Bell's target has to keep making good profits to get all the money, but help lock in the key "assets" of Southern Cross - its people - for the next three years. Southern Cross' directors, headed by Mr Potts, but including brothers Angus and Charlie Aitken, Adam Stratton, Richard Granger and James Unger, are the main shareholders. Peter Gray, who left the board last year, is also believed to have retained his holding. Mr Bell said the two businesses were complementary, with Southern Cross strong in institutional and corporate activities, while Bell had a broader retail client base, with offices around the country. Mr Potts said in a statement that Bell Financial's $25 billion of funds under advice provided a strong platform to support the enlarged group handling capital raisings for clients. "Also, for some time we have been planning for growth beyond the domestic market and the transaction will accelerate that process," he said. A pro forma consolidation of the two groups' accounts for the just-ended financial year gives them a combined $291.7 million of revenue and $47.4 million of net profit. The staggered payments not only mean Bell's target has to keep making good profits to get all the money, but help lock in the key "assets" of Southern Cross - its people - for the next three years. Southern Cross' directors, headed by Mr Potts, but including brothers Angus and Charlie Aitken, Adam Stratton, Richard Granger and James Unger, are the main shareholders. Peter Gray, who left the board last year, is also believed to have retained his holding. Mr Bell said the two businesses were complementary, with Southern Cross strong in institutional and corporate activities, while Bell had a broader retail client base, with offices around the country. Mr Potts said in a statement that Bell Financial's $25 billion of funds under advice provided a strong platform to support the enlarged group handling capital raisings for clients." Also, for some time we have been planning for growth beyond the domestic market and the transaction will accelerate that process," he said.
© 2008 The Age
