Fitch Ratings has placed Man Group plc's (Man) Long-term Issuer Default Rating (IDR) of 'BBB+' on Rating Watch Negative (RWN) following the announcement of its proposed acquisition of GLG Partners Inc (GLG). A complete list of ratings is provided at the end of this comment.
The RWN reflects execution risks from the integration of GLG into Man, retention of key GLG staff and funds under management (FUM) and the incorporation of the two companies' distinct cultures. The RWN also reflects the negative effect the acquisition would have on Man's leverage and capital. Fitch will resolve the RWN following further examination of the impact of the transaction and an assessment of Man's success in integrating GLG's operations and culture. Man's Long-term IDR is not expected to fall below investment grade.
Man's current ratings are based on a substantial cash and capital surplus above its regulatory capital requirement. Man's outstanding debt is fairly significant at around USD1.4bn. The absolute level of financing provided to Man's own funds has fallen on an absolute level but in the past has expanded and contracted with its FUM. Fitch does not expect a material increase in debt from this transaction. Nevertheless, the net debt/EBITDA ratio could be more volatile with the addition of GLG.
The proposed transaction values GLG at USD1.6bn with Man planning to pay a substantial portion in cash. Fitch notes that this is equivalent to a fairly high 6.75% of GLG's FUM at 31 March 2010. Fitch expects Man's capital surplus, tangible equity and solid net cash position would be depleted by GLG's acquisition to an only adequate level.
Fitch understands that GLG's investment managers intend to remain at GLG after the acquisition but notes that the integration of different cultures and pay structures can be challenging and some loss of staff and FUM could occur. Fitch notes that the acquisition of GLG could reinforce Man's strong franchise in alternative investment management in the medium term through the diversification of its client base, geographic reach and investment products, and its improved scale. At 31 March 2010, Man had funds under management (FUM) of USD39.1bn and GLG FUM of USD23.7bn. The acquisition is subject to regulatory and shareholder approvals.
Man is a leading provider of alternative investment products to private and institutional clients and is listed on the London Stock Exchange.
GLG is an alternative investment manager listed on the New York Stock Exchange.
Fitch has placed the following ratings on Rating Watch Negative:
Man Group Plc
Long-term IDR 'BBB+'
Subordinated Debt 'BBB'
Hybrid Debt 'BBB-'
