Aberdeen deal with Edinburgh seen as cash injection

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The Independent Online

Aberdeen Asset Management, the fund manager at the heart of the split capital investment trust investigation, yesterday agreed to buy Edinburgh Fund Managers for about £36m in Aberdeen shares.

Simultaneously New Star Asset Management, the unquoted group led by John Duffield, is to pay Aberdeen £33m for Edinburgh's retail unit trusts and OEIC sub-funds, including the Edinburgh Portfolio fund of funds business.

Aberdeen will receive £27m cash from New Star and the remainder in New Star stock. Aberdeen will use some of the cash to repay debt and pay £9m into Edinburgh's pension fund, which is in deficit. Aberdeen also will assume £8m of Edinburgh's net debt. This is being seen by the City as an indirect cash injection into Aberdeen.

"It is a very attractive deal for all of us," Aberdeen's chief executive officer, Martin Gilbert, said. "It's a very good combination." He said that there would be job losses among Edinburgh's 200 employees, but declined to quantify them.

Aberdeen is acquiring £3.3bn of funds under management and selling on £900m of funds to New Star. Aberdeen will more than double the £1.3bn of assets it oversees in investment trusts as a result of buying Edinburgh, which handles £1.7bn in nine closed-end funds.

Aberdeen said its offer had the support of 49.6 per cent of Edinburgh Fund shareholders. Aberdeen will seek approval from its own investors to issue 58 million new shares, equivalent to 33 per cent of its existing stock, to finance the transaction.

"The key issue is how sticky the Edinburgh mandates are," said Philip Middleton, an analyst at Merrill Lynch in London. He rates Aberdeen shares "neutral".

Edinburgh Value and Income Trust, one of the investment trusts managed by Edinburgh Fund Managers, said it was cutting the notice on its management contract from 12 months to three months.

Edinburgh Fund Managers has suffered from an exodus of fund managers and customers that has depleted assets by more than a half in two years.

The Financial Services Authority is conducting an inquiry into Aberdeen's management of split-capital trusts.

Aberdeen shares rose 1p to 62.5p. Edinburgh Fund Managers rose 32.5p to 116p.