Smith & Williamson merger with Tilney threatened by covid delay

Smith & Williamson’s plans to merge with wealth manager Tilney – due to complete this week – have been derailed by the coronavirus crisis, and difficulties in agreeing a new structure with the Financial Conduct Authority (FCA), with the terms of any deal now unlikely to be finalised before the end of next month, reports Pat Sweet

The £1.8bn merger was first announced in September last year. At the time the firm said Smith & Williamson shareholders were to receive £625m, through a combination of cash and shares, while Smith & Williamson management shareholders would roll the majority of their investment into the equity of the enlarged group. 
 
The proposed transaction involved the acquisition of the entire issued and to be issued share capital of Smith & Williamson by Tilney Group Ltd and other entities controlled by funds managed or advised by Permira.
 
However, in January 2020, the FCA indicated to Tilney and Permira that the original proposed transaction structure had not met with its approval.
 
In its latest update, Smith & Williamson said the parties had spent the months since then developing a revised transaction structure to accommodate the feedback from the FCA.
 
The firm said: ‘Significant progress has been made in this respect. Under the revised structure, there would be a material new equity investment and thus a significant reduction in the external debt levels of the post-combination combined group.’
 
These arrangements have not been finalised due to what the firm called ‘the unprecedented circumstances caused by the Covid-19 pandemic’, which means the discussions regarding the revised structure ‘have inevitably been delayed’. 
 
The firm said: ‘The boards of Tilney and Smith & Williamson continue to believe that the combination is strategically compelling and remain committed to the transaction. 
 
‘To this end, we have agreed to extend the original long-stop date for the combination (which was 16 April 2020) for a further interim period to enable the parties to seek to agree the revised transaction structure. 
 
‘We expect to confirm whether agreement has been reached on the revised structure by the end of May 2020.’
 
The revised transaction structure, if agreed, will require approval by the relevant regulators (including the FCA), antitrust authorities and Smith & Williamson shareholders at a second set of meetings. 
 
This means, allowing for the process of receiving these approvals in the current environment, if a revised structure is agreed, the merger would be expected to complete in the second half of 2020. 
 
The Smith & Williamson update cautioned: ‘However, while all parties remain committed to the combination, given the Covid-19 situation and the fact that the revised structure has not yet been agreed, there can be no certainty that the transaction will proceed.’
 
David Cobb and Kevin Stopps, co-chief executives of Smith & Williamson, commented: ‘We continue to believe in the compelling strategic rationale of this merger and are pleased to report that significant progress has been made towards revisions to Tilney’s transaction structure that address the points raised by the FCA.
 
‘However, in light of the extraordinary circumstances created by the Covid-19 pandemic, the transaction process has inevitably been delayed. If the parties can agree amendments to the transaction structure that the Smith & Williamson Board is able to recommend, we will ask our shareholders to vote on whether the revised transaction should go ahead.
 
‘We would like to thank all of our stakeholders for their continued support and efforts in these challenging times and will provide a further update as soon as possible. 
 
‘Smith & Williamson remains in a very strong position, despite the current crisis, with a robust balance sheet and an excellent, diversified client base, on which we have never been more focused.’
 
The merged business, to be named Tilney Smith & Williamson, would have over £45bn of assets under management and retain the accounting division, handling tax, audit, accounting and business advisory services.
 
Under the terms of the original deal Kevin Stopps and David Cobb, joint CEOs of Smith & Williamson were to join the board of the enlarged group upon completion.
 
Will Samuel, current Tilney chair, was to become the chair with Tilney chief executive Chris Woodhouse becoming group chief executive.
 
By Pat Sweet
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