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November 01, 1999 12:00 AM

CHANGING OWNERS: MANAGEMENT BUYOUT, OUTRIGHT SALE AMONG POSSIBILITIES FOR GARTMORE

Beatrix Payne
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    LONDON -- Gartmore Investment Management PLC is officially on the block.

    Its parent, National Westminster Bank PLC, officially has announced the money manager is up for sale as part of its attempts to fend off a hostile bid from Bank of Scotland PLC.

    Officials at Bank of Scotland, Edinburgh, have said they, too, would sell Gartmore if its L22 billion ($35.2 billion) bid for NatWest were successful.

    Paul Myners, recently appointed executive chairman of Gartmore, said he would not rule out the possibility of a management buyout but denied rumors that he had been looking for MBO financing in the past few weeks.

    "All options are open," he said. "Clearly we are looking for an owner for the business that recognizes the value of the group" and that would be willing to pay the right price for it.

    Mr. Myners last week resumed his role as executive chairman of the London-based firm, which has L50 billion in assets under management. He was appointed non-executive chairman of Gartmore in 1997 when he took responsibility for NatWest's wealth management business, which included Gartmore.

    He will take over the responsibilities of joint chief executives Andrew Brown and David Watts, who will leave Gartmore by the end of November.

    Market analysts said a management buyout of Gartmore or its sale to a dedicated money manager are the best long-term options facing the beleaguered firm.

    Gartmore, like many of Britain's active money managers, has found the past three to four years extremely tough and suffered performance difficulties as extreme market volatility caught the money manager off guard.

    Bad call

    Gartmore's problems began in 1995 when the group prematurely called the end of the bull market, said Mr. Myners. He admitted the group had been though a "serious performance wobble" but said it was now "on the threshold of making a comeback in balanced portfolios."

    Performance has begun to improve over the past year, but it will have to be sustained over the next two to three years to be reflected in the operating results, said Ray Soifer, financial analyst for Brown Brothers Harriman & Co., New York.

    Roughly two thirds, or L32 billion, of the group's assets under management are actively managed.

    Interested buyers

    A number of international money managers are known to be interested in buying the business, but so far only ABN AMRO has stated its interest publicly.

    "NatWest would support any bid that gives them the money to fight off Bank of Scotland," said a senior source at a rival bank, who did not want to be named.

    Analysts have put price tags of between L500 million and L1.5 billion on Gartmore, but Mr. Myners refused to say how much NatWest wanted to raise from the sale. The bank also is selling subsidiaries Greenwich NatWest, Ulster Bank and NatWest Equity Partners as part of an attempt to raise cash to return to shareholders. A NatWest spokesman would not say how much the bank wanted to give its shareholders.

    One analyst said the bank might try to generate L4 billion from the sale of its non-core businesses.

    Mr. Myners has been with the bank since 1985 when he joined as managing director and is known to have built up a loyal staff following. He was to have resigned from Gartmore next January had the merger between NatWest and Legal & General, Investment Management Ltd., London, gone ahead as planned.

    The deal with Legal & General fell apart last month when Bank of Scotland launched its bid.

    Mr. Myners denied his return to the position of executive chairman was simply to fill the vacuum left by Messrs. Watts and Brown. "My appointment is without qualification and is a long-term commitment," he said.

    The search for a new chief executive, which was undertaken earlier this year when both Mr. Watts and Mr. Brown announced their plans to resign, has been terminated, he added.

    MBO the best option

    Analysts say they see an MBO as being the best option for Gartmore, as it would give executives direct ownership and control of the company.

    The MBO option also is believed to be the preference among staff who "just want to be left alone to get on with business," according to a source familiar with the company.

    "An MBO would make sense from the standpoint of the clients, as it holds the management in place," said Ray Soifer, who is financial services analyst at Brown Brothers Harriman & Co., New York.

    Until Gartmore's future is more certain, the money manager is unlikely to win new business and will have to work hard on retaining clients.

    MBO concerns

    But there are concerns over whether the Gartmore management team can afford a management buyout and over how committed the senior executives would be to the deal.

    The price at which Gartmore is sold will depend on the strength of the management team, and it is unclear whether there is a strong enough team in place, said Mr. Soifer.

    "When you sell a fund manager, you can't sell it over the objections of the people who work there," he added.

    Mr. Myners said he had full confidence in the current executive team, including Sally Tennant, head of the institutional division, and Anthea Nugent, head of client services.

    "This will be a managed process where senior management will be involved. They are there on the bridge of the ship," he added.

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