King & Shaxson, the small quoted merchant bank, is in talks to buy stockbroker Allied Provincial in a deal which would create Britain's largest private- client stockbrokers.
The price is expected to be around pounds 10m-pounds 20m. Allied made pounds 4.5m last year and a small loss the year before, giving an average figure of around pounds 1.6m. Sources close to the talks suggest a multiple of 7 or 8 gives a likely price of about pounds 13m.
The bank said the talks were friendly and that it had signed an agreement excluding other bidders until 14 July. The announcement comes as US broker Charles Schwab's bid for Sharelink, the phone share dealing company, is nearing completion. Private-client brokers were hit hard by poor volumes last year, when investor confidence evaporated.
King & Shaxson also bought private-client broker Grieg Middleton last year, and this would be merged with Allied Provincial. The Merchant bank also issued an upbeat trading statement. Despite market volumes which have only recently started recovering, King & Shaxson said that for the year ended 30 April 1995 "figures indicate earnings are more than sufficient to cover an unchanged dividend per share for that period as a result of satisfactory performance from all three operating divisions".
The forecast that the dividend will be maintained at 9p in June sent the merchant bank's shares up 9p yesterday to 114p.
Wayne Gerry, an analyst with Kleinwort Benson, said: "Given the market conditions, this is not a bad result. It leaves the shares on a 10 per cent plus yield. This has driven the share price upwards."
The proposed deal would create a stockbroking network with 29 offices, only four of which have serious overlap with each other. This would not necessarily lead to their closure, a source said.
The new operation would have a total of pounds 7.5bn in funds under management and a third of a billion invested in the fast-expanding PEPs sector.
The merged broker would have 48,000 existing customers. Both companies have administrative head offices in Glasgow which could be combined without pain, they said.
The deal is being driven by the need to achieve economies of scale on the specialised software required to keep ahead of the game in private client stockbroking, they said.
King & Shaxson does not anticipate redundancies in the combined 700-strong stockbroking workforce.
The bank bought Glasgow-based Grieg Middleton last year for pounds 18.5m, which contributed pounds 877,000 to pre-tax profits for the half year to 31 October. This helped lift King & Shaxson's profits by 64 per cent to pounds 1.25m.Reuse content