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Stockbrokers yesterday put a "token 1p" valuation on the shares of New Star, the fund management group led by John Duffield that was last night poised to cede control to a group of banks led by HBOS.
At one stage it looked as if any renegotiation to swap the £240m of debt for equity would be impossible given the £20m stock valuation of a fund management group once worth £500m. It is thought, though, that the banks, which include HSBC, Royal Bank of Scotland and National Australia Bank, were moving close to an agreement with Duffield last night. They were also trying to create a new incentive scheme to keep staff locked in and hoping to make an announcement this morning.
Since its launch eight years ago, the group has paid its fund manager "stars" a relatively low salary by City standards, giving instead large share payouts. Now the shares are virtually worthless, a new scheme has had to be devised to keep top managers on board.
The deal will be presented to independent financial advisers, the key source of business for the firm, as a fresh start for New Star. It also suggests that under-performing funds could be culled or merged, and laggard fund managers sacked. Duffield, 69, is expected to stay on to see through the restructuring of a group he created after falling out with the German owners of his previous venture, Jupiter.
It is thought that other options are being considered, including a sell-off of parts of the business. Yesterday rival fund management group Neptune, an emerging markets specialist which has grown to £2.5bn, said it was interested in opportunities that might arise from any break-up of New Star. Neptune's relatively small size means it is not in a position to take on New Star's debt, but it is cash-rich and keen to join the major league of retail investment managers.
New Star's shares, floated at 225p three years ago, closed at 6.75p last night after a further 15% fall. The uncertainty prompted analysts at stockbroker Altium to cut their rating on the shares to "a token 1p".
"Valuing New Star without understanding the outcome of the discussions regarding the debt is extremely difficult. We ...would advise that investors avoid the shares at least until the debt situation is clarified," Altium said.
- New Star Asset Management
- HBOS
- UK banking sector
- Credit crunch
- Banks and building societies
- Recession
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