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Merchant Securities

  • BY: Andrew Hore |
  • POSTED: 31/10/2011 |

Aim adviser and wealth manager Merchant Securities is recommending a 22p a share cash bid from South Africa-based financial services group Sanlam.

The bid values Merchant at £12.2m. The shares hit 23.5p each in April this year. Management are effectively locking themselves into the business through arrangements where they will own shares and be stopped from selling them for three years.

Management and the employee benefit trust are swapping some of their Merchant shares for B shares representing 22.27% of the buyout vehicle. John Amor, Lindsey Hamilton, Nigel Gurney and Colin Henderson, who do not hold any Merchant shares, and Patrick Claridge, Simon Clements, and Lindsay Mair, who do, will subscribe for a total of 1.52m B shares at 22p each. This is equivalent to a further 2.73%. That means that the management will own 25% of the buyout vehicle.

They own all the B shares and Sanlam UK owns all the A shares - equivalent to 75% of the share capital. The holder of the A shares can appoint five directors and the owners of the B shares can appoint three directors. However, Sanlam has to agree to any appointee that is not one of the original management shareholders.

The B shares can not be sold for three years unless it is “in order to alleviate the severe personal hardship of the B shareholder concerned”. After three years, any share sales have to be made to another B shareholder, the employee benefit trust, a new employee or back to the company itself.

Any shareholder who leaves as a “bad leaver” will be forced to sell their shares at the lower of the bid price or fair value. This is also true if someone leaves within 12 months of the bid going through. A good leaver, who lasts at least 12 months, will receive fair value for the shares.

It appears that Sanlam is keen to keep both the broking and wealth management businesses and retain the management. Sanlam UK already has wealth management operations.

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