Knights of the Southern Cross
Bell Financial's cash and scrip offer for Southern Cross Equities stands to make key stakeholders very wealthy.
The leading shareholders of Southern Cross Equities are poised to reap windfall gains from the agreed merger with Bell Financial Group, proving that even in a major downturn there's money to be made for those in the right place and the right time.
Brent Potts and his fellow shareholders will receive $150 million for their ten year old business – half in the form of Bell stock and the other half in cash – payable in four equal instalments over the next three years.
Bell has been an acquisitive broker, snapping up the likes of Johnson Taylor and the advisor team from Challenge First Pacific for little or no outlay, and Falkiner Stockbroking though the issue of stock. Southern Cross is the first to extract a significant cash sum, proving the attraction of its business.
Potts is the single largest shareholder in Southern Cross, the brokerage firm he co-founded with Peter Gray. It is understood Potts and Gray and five other shareholders – brothers Charles and Angus Aitken, Richard Grainger, Adam Stratton and James Unger – hold the "vast majority” of stock. All told, there are 18 shareholders.
They will emerge with just under 25 per cent of the enlarged Bell Financial Group, which is offering its stock at $1.25 a share, a significant premium to its recent trading price of around 90c, but down from the offer price of $2 a share in its December IPO.
Indeed, the recent performance of the two companies is highlighted by the unaudited profit results released by the two companies today.
Southern Cross has increased its net profit for fiscal 2008 to $25 million, even after what Potts describes as "substantial bonuses”, up from $17 million a year earlier. Potts says the business has been underpinned by its focus on institutional clients and high net worth individuals, and its exposure to the mining sector, where it most notably helped in a $550 million placement for Fortescue Metals.
Bell, on the other hand, has suffered badly from a severe slump in corporate fee income (down 66 per cent), and a slump in broking income (down 15 per cent), and will report a 46 per cent fall in June half net profits to $9 million, even worse than forecast at its AGM in May.
Potts, however, says the potential synergies between the two businesses are significant, with Southern Cross focusing on the institutional side and Bell enjoying a large network of advisers and private clients. The combined business will emerge as the largest Australian owned broking house behind Macquarie, which is now more merchant bank than broker.
Incidentally, Potts began his career as a stock exchange "chalkie” in the 1960s before going on to become a principal of Potts West Trumbull in the 1980s. That business was sold to Pru Bache in 1992. Potts went into premature retirement after a serious car accident but returned to establish Southern Cross.
He describes the recent market meltdown as a "death by a thousand cuts”. Losses have been as or more significant than in the 1987 market crash, and more drawn out. He doesn't see a "V” bottom to the market either, more a very fat "U” bottom.
Brent Potts and his fellow shareholders will receive $150 million for their ten year old business – half in the form of Bell stock and the other half in cash – payable in four equal instalments over the next three years.
Bell has been an acquisitive broker, snapping up the likes of Johnson Taylor and the advisor team from Challenge First Pacific for little or no outlay, and Falkiner Stockbroking though the issue of stock. Southern Cross is the first to extract a significant cash sum, proving the attraction of its business.
Potts is the single largest shareholder in Southern Cross, the brokerage firm he co-founded with Peter Gray. It is understood Potts and Gray and five other shareholders – brothers Charles and Angus Aitken, Richard Grainger, Adam Stratton and James Unger – hold the "vast majority” of stock. All told, there are 18 shareholders.
They will emerge with just under 25 per cent of the enlarged Bell Financial Group, which is offering its stock at $1.25 a share, a significant premium to its recent trading price of around 90c, but down from the offer price of $2 a share in its December IPO.
Indeed, the recent performance of the two companies is highlighted by the unaudited profit results released by the two companies today.
Southern Cross has increased its net profit for fiscal 2008 to $25 million, even after what Potts describes as "substantial bonuses”, up from $17 million a year earlier. Potts says the business has been underpinned by its focus on institutional clients and high net worth individuals, and its exposure to the mining sector, where it most notably helped in a $550 million placement for Fortescue Metals.
Bell, on the other hand, has suffered badly from a severe slump in corporate fee income (down 66 per cent), and a slump in broking income (down 15 per cent), and will report a 46 per cent fall in June half net profits to $9 million, even worse than forecast at its AGM in May.
Potts, however, says the potential synergies between the two businesses are significant, with Southern Cross focusing on the institutional side and Bell enjoying a large network of advisers and private clients. The combined business will emerge as the largest Australian owned broking house behind Macquarie, which is now more merchant bank than broker.
Incidentally, Potts began his career as a stock exchange "chalkie” in the 1960s before going on to become a principal of Potts West Trumbull in the 1980s. That business was sold to Pru Bache in 1992. Potts went into premature retirement after a serious car accident but returned to establish Southern Cross.
He describes the recent market meltdown as a "death by a thousand cuts”. Losses have been as or more significant than in the 1987 market crash, and more drawn out. He doesn't see a "V” bottom to the market either, more a very fat "U” bottom.
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