Investec foots R770m bill to unbundle Ninety One

Once the dust settles on the demerger of Ninety One (formerly Investec Asset Management) from Investec, advisors, investment banks and lawyers will have been paid as much as £37.1 million excluding Vat, the equivalent of R770 million at current exchange rates.

Read: Investec asset management spin-off plan lifts shares (Sep 2018)

None of this will be paid by Ninety One itself. The entire bill, including certain marketing expenses, is being borne by Investec.

Read: Investec to sell 10% of asset manager in March spin-off (Nov 2019)

Investec announced late on Thursday that while the demerger would proceed, the plan to introduce new or existing institutional shareholders via the sale of 10% of the company by Investec would be abandoned “in light of the recent volatile market conditions”. This will be a relatively straightforward unbundling.

The cost

The single biggest expense line for the demerger is for Linklaters, the legal advisors to Ninety One in the UK and US. For this, they will be paid £11 million (R227 million), more than 40% of the total amount. Edward Nathan Sonnenbergs (ENSafrica) will be paid about £719 000 (R15 million) for their work.

The financial advisors to Ninety One and Investec, Fenchurch Advisory Partners and JP Morgan Cazenove respectively, will each be paid £6 million (R124 million).

The JSE will receive an estimated R125 000 in listing and document inspection fees (it is likely this fee is closer to R100 000, given the recent rapid depreciation of the rand).

Expenses and fees (£’000)

Each Investec shareholder will own one Ninety One share for every two Investec shares held. This is across both the Limited and plc entities. 

Investec joint CEO Fani Titi says: “Market conditions have proved particularly challenging in the recent two weeks, and while we were encouraged by the strength and quality of investor engagement in relation to the Global offer, we have decided to retain our shareholding in Ninety One.”

Investec will now hold 25% of Ninety One.

Given the lack of the introduction of new shareholders, there will no longer be an offer price set. The original plan was for joint bookrunners – JP Morgan, Investec Bank and Merrill Lynch – to share £6.115 million (R127 million) in underwriting fees. Somewhat gauchely, Investec’s banking unit would’ve therefore been paid over £2 million for acting as one of the joint bookrunners in a corporate transaction involving its own parent.

The bookrunners will have been made to work in recent weeks to try drum up interest among institutions.

It is unlikely the joint bookrunners will earn anything close to their full fees (given that much of this is paid as commission upon the offer price achieved). But much work will have been done and certain expenses incurred.

The fees above are based on the midpoint of the offer range of between 190 pence and 230 pence a share being achieved.

Again assuming this, Investec will have raised £203.8 million from the offer, equal to £166.7 million (almost R3.5 billion) after fees and expenses.

With the offer abandoned, Investec now foots the entire bill. In other words, not from the proceeds.

Post-demerger structure

While it appears simple, the transaction is complex.

A total of 11 steps have to be completed, mostly over this weekend, to give effect to the new structure.

The circular to Investec shareholders totals 306 pages, while the Ninety One prospectus runs to 318 pages. The Separation Agreement, filed at Companies House in the UK, alone is 56 pages.

Whether this is complex enough to warrant a total legal bill for the demerger of over R250 million can rightfully be questioned.

In its FAQ, Ninety One highlights that it has “operated as a separate, standalone business since inception. IAM [Investec Asset Management] has been run autonomously for a long time”.

Structure

Post the unbundling, approximately 55% of Ninety One will be distributed to Investec shareholders (via the plc and Limited vehicles), Investec will now retain 25% (including the 10% originally earmarked for new/existing institutional shareholders) and Ninety One management will hold approximately 20%.

This management holding via a trust already exists, with Investec currently owning 80% of the asset manager. Ninety One will list as a dual-listed company.

The bill for this demerger is not miles apart from the €43.3 million, or about R736 million at the time, paid by Naspers to effectively offshore its international assets via the Prosus listing. This new holding company listed on the Euronext exchange in Amsterdam in September.

Read: Banks score R500m in Prosus listing

In that transaction, however, a total of 11 investment banks in their roles as lead and other financial advisors were paid the rump of fees. Lawyers were ‘only’ paid a total of R141 million (at R17: €1).