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Jun 04, 2007:
LONDON - LONDON (Reuters) - South-African investment bank Investec said on Wednesday it has agreed to buy British lender Kensington Group Plc, securing a foothold in the UK's "sub-prime" mortgage market.
Investec agreed to buy Kensington in a share and dividend deal worth around 273 million pounds and plans to inject money into the company, which said trading was challenging in the face of stiff competition from other lenders.
Investec is one of several big banks, including Morgan Stanley and Merrill Lynch, to make acquisitions to expand into the UK's sub-prime market.
Kensington provides mortgages to the self-employed, older borrowers and people with poor credit histories and is the UK's last independent specialist lender listed on the stock market.
The firm also issued a warning on 2007 revenue on Wednesday, citing increased competition. There are also fears a slump in the U.S. sub-prime housing market could be repeated in the UK.
Recent interest rate rises, as well as further predicted hikes in the UK, could also put people off taking out new loans. Kensington also said it had been unable to borrow money at competitive prices.
Under the deal each Kensington shareholder would receive 0.7 Investec Plc shares and a special dividend of 26 pence paid by Kensington. That was equivalent to 519-1/2 pence per share based on Investec's London-listed closing share price on Tuesday.
Investec shares were down 3.4 percent at 681p by 1045 GMT in London, valuing the firm at around 2.7 billion pounds and the deal about 273 million pounds.
Kensington shares were up 0.4 percent at 492 pence. Its shares have more than halved in the last year after reaching an all-time high of 1210p last March.
TRADING PROBLEMS
Investec Chief Executive Stephen Koseff said he was familiar with Kensington's trading problems and the price offered reflected this.
Kensington said in March profits in future years were likely to be below forecasts and its chief executive quit.
Koseff believes Investec can give Kensington the funds, and access to capital markets, for it to grow. The deal would be earnings enhancing to Investec before synergies in the first full year after completion, it said.
"Kensington does not need a working capital injection in the short-term but it does in the long-term to grow," Koseff said in a conference call. "We believe this is an attractive franchise play."
Kensington Chief Executive Alison Hutchinson said in an interview the extra funding from Investec would help it realise its growth potential.
"Investec has a big appetite (for growth) and that will determine the capital requirements I need," Hutchinson said.
Kensington is looking at new products involving buy-to-let mortgages, commercial mortgages and has plans for European-wide expansion beyond its Irish and Swedish investments.
It also outlined a plan to cut costs by around 8 million pounds a year through removing duplication and investing in technology to improve efficiency. There will be job cuts but Hutchison could not say how many.
Koseff said integrating Kensington's 300 staff would be relatively simple and its senior management would stay in place, but the firm would de-list.
The new shares for Kensington shareholders will not qualify for the final dividend of 13p per share Investec has proposed for the year to March 31, it said in a statement.
