Henderson Group PLC (HGI.LN) Friday moved to strengthen its position in the U.K. retail fund-management industry, with its recommended acquisition of embattled rival New Star Asset Management PLC (NSAM.LN), which would result in the new firm having GBP59.5 billion assets under management.

Henderson said it is a "strategically compelling acquisition" that would significantly increase its scale and distribution in the U.K. retail fund-management market, which has been hit from the global economic turmoil and led to major consolidation moves in the sector.

The enlarged group would be ranked the fifth-largest U.K. retail fund manager by funds under management.

Under the offer, Henderson will pay GBP22 million for New Star's ordinary shares, or 2 pence a share, as well as GBP73 million for New Star's preference shares following its restructuring. Henderson will also cover New Star's GBP20 million debt, leaving it debt-free.

New Star's founder and executive chairman, John Duffield, said in a statement that Henderson is an "excellent partner for New Star, offering strong support and certainty to New Star's clients and staff in these times."

The deal will join together two managers with a "similar culture and investment approach," he said."

To help fund the agreed deal, which has a total enterprise value of GBP115 million, Henderson plans to raise GBP65 million from a share placement and issue. The remaining GBP50 million will come from internal cash reserves.

The tie-up will result in integration costs of approximately GBP31 million after tax, and is expected to be boost earnings by 2010, according to Henderson.

At present, Henderson and New Star have assets under management of GBP49.5 billion and GBP10 billion, respectively.

Henderson also announced that it would book a 2008 profit before tax and non-recurring items of about GBP80 million. Operating profit before tax and non-recurring items from continuing operations was GBP106.7 million in 2007.

The group plans to pay a final dividend of 4.25 pence a share, resulting in a total dividend of 6.1 pence a share for 2008, steady from a year earlier.

Shore Capital analyst Danny Clarke said the acquisition and terms were "broadly as expected," although "slightly expensive versus recent deals" such as the Aberdeen Asset Management and Credit Suisse (CS) tie-up and GLG Partners Inc. (GLG) and Societe Generale SA (13080.FR) union.

"Price-adjusting mechanism is positive," although there are concerns over integration and funds under management retention and performance, he added.

Henderson's current trading is "slightly better than expected," said Clarke, who has a "solid hold" on the stock.

The deal and trading update were well-received by investors, who pushed Henderson shares up 13 pence, or 21%, at 75 pence in a flat London market.

New Star shares, which hit a record high of just over 480 pence in June 2007, were at 2 pence, up fractionally.

New Star, one of the better-known names with the public in asset management, began experiencing liquidity problems late last year and said it was exploring alternatives for its business, including a possible sale. It disclosed Monday that it was in talks with Henderson that could lead to an offer for the firm.

The deal is subject to approval from both set of shareholders, the U.K.'s Finance Services Authority and other regulatory bodies. Henderson said it hopes to complete the purchase by December.

Company Web site: www.henderson.com

www.newstaram.com

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com

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