LONDON, March 14, 2002 (PRIMEZONE) -- Old Mutual plc ("Old Mutual") (LSE:OML) today announced that it has agreed to restructure the residual 20% revenue share interests in its key US mutual fund business, Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter"), through the payment of $175m plus an earn-out over five years if profits growth exceeds 7.5% per annum.
Pilgrim Baxter is the US-based retail and institutional fund manager acquired by Old Mutual through the purchase of United Asset Management ("UAM") in September 2000. This restructuring involves replacing the residual revenue share retained by Harold Baxter and Gary Pilgrim (the "Principals") in Pilgrim Baxter.
This restructuring consolidates Old Mutual's interest in the prosperous US retail asset management market and has a number of benefits to Old Mutual:
- Finalizes the restructuring of Pilgrim Baxter after the expiry of the previous option to reorganise the Principals' residual interest. - The bottom line-orientated earn-out structure aligns the interest of Old Mutual and the Principals in maximising growth and profits. It also simplifies the structure for advancing the development of Pilgrim Baxter as the key retail component in Old Mutual's asset management strategy in the United States. - Elimination of the revenue share strengthens Pilgrim Baxter's existing incentive plan and hence its ability to retain and attract talented investment professionals.
The financial terms of the restructuring involves replacing the 20% revenue share of the Principals with the following elements:
- Three fixed payments of $58.3m, payable in March 2002, February 2003, and February 2004. In respect of each payment, Old Mutual can elect to pay $16.7m in its own shares, however the first payment will be made in cash. - Five annual earn-out payments, due in February 2004 - 2008, if profits growth, exceeds 7.5% per annum from a base of $53.6m. If profits growth is a constant 15% per annum then each yearly payment would be $18.2m. The payments are capped at $68.2m annually if profits growth is equal to, or greater than, 30% per annum.
Jim Sutcliffe, Chief Executive, Old Mutual plc, commented: "We are delighted to have concluded these arrangements and so completed the restructuring of our US asset management businesses. Pilgrim Baxter is well placed to accelerate its growth, and successfully expand its platform, in the all-important US market."
Notes to Editors
In November 2000, Old Mutual partially restructured the UAM Revenue Sharing agreement with Pilgrim Baxter and as a result of this arrangement an option was put in place for Old Mutual to pay a total of $420 million (or approx. 291 million pounds) in satisfaction of the Principals' residual revenue sharing rights. This option was not exercised by Old Mutual and expired in December 2001. As a result, the Principals were entitled to a 20% revenue share in the business of Pilgrim Baxter for a period of 10 years.
Pilgrim Baxter is a US-based asset manager with assets under management of $12.6 billion as at January 31, 2002 and annualised revenues of approximately $109 million, based on the three months ended January 31, 2002. The business has a market leading range of retail mutual funds with over half of the firm's Morningstar - rated portfolios having achieved four-or five-star ratings.
Pilgrim Baxter has recently added five new high quality investment styles and asset classes to its flagship PBHG mutual fund family. All five of the new portfolios are sub-advised by other Old Mutual investment managers.
Pilgrim Baxter has recently established substantial sub-advisory relationships to manage portfolios for the mutual fund groups of three large financial services organisations - American Skandia Life Assurance, American Express, and Wachovia Corporation's First Union Securities. The sub-advised portfolios encompass both growth and value investment styles.