Invesco's US merger plan unsettles City

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Invesco is poised to merge with AIM Management Group of the US in a deal which would create a fund management group with almost $150bn (pounds 96bn) of funds under management, and yield a $50m windfall for the American company's founding and septuagenarian chairman.

Investors were unsettled by yesterday's announcement by Invesco, which was forced into making a statement due to strong rumours of an imminent deal in the US.

Some analysts said that Invesco, which has steadily restored credibility after falling from grace over its involvement in the Maxwell affair, might need to make a huge rights issue to fund the deal, which could cost between $1bn and $1.5bn (pounds 641m to pounds 962m).

The deal would at least double Invesco's market capitalisation of pounds 648bn on last night's closing price of 239p, down 4.5p. Analysts say the takeover values of fund management firms lie between 2 and 3 per cent of funds under management.

If the merger is agreed it could net $50m for Charles Bauer, AIM's 77- year old chairman, who owns around 5 per cent of the fund management firm he set up 20 years ago. The remainder of AIM's unlisted stock is tightly held, and a key 27 per cent stake is owned by TA Associates, a US venture capital firm.

Some analysts questioned the timing of a merger with AIM, particularly in the light of widespread predictions of a severe correction soon in share prices both sides of the Atlantic.

Invesco already has 60 per cent of its funds invested in the US, which has seen share prices rocket more than 50 per cent in the past 18 months. "The deal would leave Invesco even more relatively exposed to the US stock market and we're fairly nervous about things there," one analyst said.

However, analysts said there was no doubting AIM's strong reputation in the US, illustrated by the fact that when one of its key funds was reopened to investors last year, more than $1bn of money flooded the fund in just two days.

Invesco, which manages pounds 57bn of funds, declined to go into specific details about the talks with AIM, which is one of America's fastest-growing fund groups and manages $54bn of funds.

"No definitive announcement has been reached and a further announcement will be made in due course," a spokesman for Invesco said.

Several analysts suggested that a Invesco could avoid a cash call by making a straight issue of shares to AIM's investors. They believed that Invesco would want to end up with 65 per cent of the equity of the enlarged group.

However, some said that Invesco would be lucky to get away with an all- paper offer because TA Associates would probably want straight cash for its holding.

The venture capital group has an agreement obliging AIM to find a buyer for its shares by the turn of the millennium.

Invesco's profits have improved well since 1991 when its involvement with Maxwell resulted in it receiving the largest fine to be dished out by Imro, the investment regulator. Profits before tax climbed from pounds 39.3m to pounds 50.4m last year.