Split-cap specialist Exeter sells out to Iimia fund group

Exeter Investment Group, one of the main protagonists in the split-capital investment trust sector, threw in the towel yesterday, selling the remainder of its business to Iimia investment group, the boutique fund manager, in a share-based deal.

Exeter Investment Group, one of the main protagonists in the split-capital investment trust sector, threw in the towel yesterday, selling the remainder of its business to Iimia investment group, the boutique fund manager, in a share-based deal.

The companies will be merged with the newly enlarged Iimia floating on the Alternative Investment Market next month. Exeter shareholders will receive 62 shares in the new company for every 100 Exeter shares.

The deal will be a risky purchase for Iimia, leaving it carrying the liability for Exeter's involvement in the split-capital debacle. Exeter is one of the 21 firms accused by the Financial Services Authority of being involved in collusive activity in the split-cap sector, and will be expected to contribute to a compensation fund the regulator is trying to establish.

After selling its unit trust business for £10m to New Star Asset Management last year, the FSA made Exeter ring-fence the proceeds for any compensation or fines which may be levied upon it as a result of the split-cap investigation.

While this money remains intact, Iimia would be responsible to pick up the bill if the regulator demands more. Furthermore, if Iimia refuses to pay up, it will be forced to appeal against the FSA's subsequent disciplinary action at the Financial Services & Markets Tribunal. A loss could leave the firm facing subsequent legal actions from shareholders.

Both companies refused to comment on whether assurances had been received from the regulator as to the size of any potential fine or compensation payment. So far, none of the 21 companies are believed to have agreed to the FSA's mediation terms, with all facing the possibility of a Tribunal clash with the regulator. If the 21 fail to reach an agreement with the FSA by the autumn, the Treasury Select Committee has vowed to hold its own inquiry.

All eyes are now focussed on the Tribunal hearing of David "Dotty" Thomas, one of the architects of the split-cap sector, which is due to start next week.

Michael Phillips,Iimia's chief executive, said: "We have been ... compelled by the strategic fit of the two businesses. The merger provides an excellent platform from which to realise our ambitions of building a significant financial services group." Bournemouth-based Iimia was founded in April 2002. The combined group will have assets under management of around £500m, and around £3bn in funds under administration.