Close Brothers to stand alone

Close Brothers, the UK merchant bank which has recently terminated takeover discussions, has released its 2008 interim results for the six months to 31 January 2008 showing operating profit before tax of £69.8m, down by 29% compared to the same period last year.

Colin Keogh, chairman and chief executive officer of Close Brothers, describes the period as eventful: “The group received an unsolicited takeover approach and our markets have been impacted by the effects of the credit crunch. In addition, equity markets have been volatile against a background of a deteriorating economic picture in the US, the UK and Europe.”

Keogh continues: “On 8 November 2007 we received an unsolicited approach for the group. Since that time we have been in an Offer Period as defined by the Takeover Code. During this period we received a number of other approaches and have entered into detailed discussions with several parties. These discussions were held against the background of steadily deteriorating credit and stock markets and, as a result, no bidder has been able to deliver a firm, fully financed, offer for the board to consider or which we could put to our shareholders. This has been an unsettling period for our employees, clients and customers and after this prolonged period of uncertainty, the board decided to terminate all such discussions.”

During the offer period, Close Brothers board reviewed its options: a sale of the whole group, which “was fully pursued but no firm, fully financed, offer was forthcoming”; a break-up option which was rejected; the sale of one or more of our divisions, which was “equally unattractive”; and gearing up the balance sheet and returning cash to shareholders, which the board would not be happy about, but is keeping under review.

The board “came to the clear conclusion that it was in the best interests of all shareholders that Close Brothers should continue to grow and develop as a broadly based financial services group,” with a reaffirmed strategy: “actively to manage our distinctive, diverse, specialist and soundly financed businesses with a view to generating growth in profit, dividends and long term shareholder value.”

Shares in Close Brothers fell 90p, or 12%, to 660p on February 29th in early trading after the FTSE 250 investment bank said that it was “no longer in discussions in relation to an offer for the group or any of its divisions”.

On January 22, rival stockbroker Cenkos, formed by Andy Stewart withdrew its interest in the group. Its offer had been supported by Landsbanki, the Icelandic bank. However, other possible suitors remained interested in the group.

It was thought that private equity firm Blackstone, where former Close Brothers restructuring expert, Martin Gudgeon, now works, was considering an offer.

Japanese company Orix was also put forward as a possible purchaser. Another broker Collins Stewart was believed to be keen on buying Close’s market maker Winterfloods.