GAM will need £89m to survive if Liontrust deal fails

GAM has called on a major investor group to ‘accept the realities’ of its financial position as it reiterated the call for shareholders to back Liontrust’s acquisition bid.

The Swiss fund manager warned that, should the proposed takeover fail, it will need a cash injection four times greater than what is currently on offer from a rival investor group in order to survive. 

Last Thursday, Rock Investments wrote to the Swiss asset manager’s board with a proposal to provide a 25million Swiss francs (£22.3million) convertible bond to GAM.

The approach is meant to replace loans made by Liontrust Asset Management to GAM should the London-based firm’s takeover approach not succeed.

New idea: Last Thursday, Rock Investments wrote to the Swiss asset manager’s board with a proposal to provide a 25million Swiss francs (£22.3million) convertible bond to GAM

But GAM has rejected Rock’s plan, saying it would be ‘insufficient to maintain GAM as a going concern’ in the short term and that a minimum capital injection of at least CHF100million is required.

GAM urged Rock to ‘acknowledge and accept the realities relating to GAM’s financial position, if the Liontrust offer is declared unsuccessful’.

The firm said: ‘It is essential that Rock acknowledge and accept publicly that the level of funding needed to stabilise GAM is significantly higher than the net proceeds of the Rock proposed convertible bond.’

It continues to advise shareholders support the £96million buyout from Liontrust, which would create a business holding £53billion of assets under management.

Earlier this month, Liontrust extended its offer period for the third time, giving investors until 4pm on 23 August to approve the deal, almost a month after the original deadline.

On Monday, GAM said the proposal was the ‘only viable option in the interests of all stakeholders,’ adding that the enlarged firm would have a ‘strong balance sheet, a broader array of excellent investment products, a global distribution footprint and the capability to deliver synergies and growth’.

It told investors that the first tranche of a loan worth CHF10million to fund GAM’s losses and UK pension payments during July and August had been drawn down. 

A second loan will become available should Liontrust’s offer be finalised.

Rock, which controls a 9.6 per cent stake in GAM, opposes Liontrust’s bid, claiming it ‘significantly undervalues’ the company and is subject to unattractive ‘execution contingencies’.

The group also believe that Liontrust is an unsuitable owner, given how much the firm’s share price has slumped over the past couple of years relative to other fund managers.

Liontrust Asset Management shares have almost halved in value this year. They were 0.5 per cent lower at 592.5p on late Monday afternoon.

Rock has released a ‘100-day turnaround plan’ for GAM, which would include, aside from the capital investment, appointing a new board and aligning the cost structure with assets under management. 

Liontrust’s chief executive, John Ions, said the blueprint lacked sufficient detail, including about how the necessary restructuring would be funded while keeping GAM a ‘growing and profitable’ company.

This post first appeared on Dailymail.co.uk