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BlueBay founders expect 82m windfall from Royal Bank of Canada sale

Date: Tuesday, October 19, 2010
Author: # Elena Moya and Simon Bowers, Guardian

BlueBay's deal with Royal Bank of Canada values the company at just under 1bn, with 82m for its two founders

BlueBay Asset Management is valued at just under 1bn in an agreed deal with Royal Bank of Canada that will net its founders Hugh Willis and Mark Poole 82m each. Above, the Drax power station, the purchase of whose debt helped boost BlueBay's profits. Photograph: John Giles/PA

Two founders of BlueBay Asset Management are each to receive a 82m windfall after agreeing to sell the London-listed company to Royal Bank of Canada (RBC) in a deal valuing the business at close to 1bn.

Hugh Willis, chief executive, and the chief investment officer, Mark Poole, who together previously headed JP Morgan's European credit arbitrage operations, founded BlueBay in 2001, floating the business four years ago.

As well as further enriching the founders, the agreed sale will also provide a colossal payday for the group's 220 staff, who own more than 40% of shares.

The European arm of the failed investment bank Lehman Brothers, now in administration, is also a big investor, with a holding of close to 5%.

BlueBay, which has $40bn (25bn) of assets under management, has evolved from a hedge fund into a more conservative asset management operation.

RBC's offer price of 485p a share represents a 29% premium to BlueBay's closing price of 375.70p on Friday.

Shareholders will also receive a final dividend of 7.5p.

Stuart Duncan, an analyst at KBC Peel Hunt, said: "BlueBay is a highly attractive asset, which is trading well and delivering as expected. In our view, the offer price looks attractive but this must be put in context of 43% earnings growth forecast in 2011, followed by 26% in 2012."

Willis and Poole have pledged to reinvest a quarter of their respective holdings under the terms of the deal and will continue to lead BlueBay, which will retain investment autonomy from RBC.

Their windfall comes just months after the two founders each raised 21m by selling 6.5m shares in a placing.

RBC, which has recently expanded its operations in Europe, said the purchase will "further strategy to leverage our position as a top 10 global wealth manager".

BlueBay has changed considerably since its flotation in 2006. In the past, profits were mostly driven by its hedge funds, including the special situations unit, which was co-led by its US fund manager, Gina Germano, who is now no longer with the firm.

Germano's lucrative investments included Drax, Britain's largest power station, whose debt was purchased at a deep discount by BlueBay and other distressed funds after US owners AES walked away. A rally in electricity prices followed, later yielding a hefty profit to creditors, such as BlueBay, who had swapped their debt for equity.