Baer Agrees to Buy Merrill Non-U.S. Wealth Units

Analysts, investors dubious about value of move

Zurich-based money manager Julius Baer has agreed to purchase the non-U.S. wealth management units of Bank of America Corp.’s Merrill Lynch. The deal is expected to increase Baer’s assets by approximately 40%. Neither analysts nor investors appeared enthusiastic about the move, however, as the former issued caveats about its potential and the latter drove the stock down in Zurich trading.

Merrill Lynch LogoBloomberg reported Monday that Baer made the announcement that it would pay about 860 million Swiss francs ($880 million) for the business. The full cost of the deal will run 1.47 billion francs. That includes incentives to keep Merrill bankers; 312 million francs after taxes to integrate the new purchase; and 300 million francs to boost regulatory capital.

The firm has canceled a proposed share buyback and instead intends to launch a rights offering of 750 million francs to help pay for the deal. The cost represents 1.2% of assets under management. It is based on a transfer of some 72 billion francs in client funds, nearly 89% of the 81 billion francs managed by the Merrill units as of June 30, during the two years integration is expected to take.

Baer is working to boost its AUM, as previously reported by AdvisorOne, with tax evasion crackdowns globally taking a toll as clients repatriate money formerly held in Swiss accounts. Analysts, however, are not excited about the deal, finding fault with various aspects of the transaction.

“I can’t see anyone getting very excited about this,” said Dirk Becker in the report. Becker, a Frankfurt-based analyst at Kepler Capital Markets who has a hold rating on the stock, added, “It’s a big business, but not a profitable one, and they’ve lowered their financial targets.”

Teresa Nielsen, a Zurich-based analyst at Vontobel Holding, said in the report that the acquisition “looks rather expensive, especially when taking into account the integration costs, implementation risks and need for an additional capital increase.”

Baer’s stock dropped as much as 5.7% at one point in Monday Zurich trading, and at midday had lost 5.4%.

While Julius Baer CEO Boris Collardi was quoted saying, “This acquisition brings us a major step forward in our growth strategy and will considerably strengthen Julius Baer’s leading position in global private banking,” the firm expects that profits could be “somewhat volatile” until 2015. At that point it expects the acquisition to add to earnings.

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