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Man Group (LSE:EMG) announced this morning that it has completed negotiations with Hutchinson Investors Ltd and has started the mechanism for selling its remaining exposure to Lehman claims that it acquired in July of 2011.
At a sales price of $456 million, Man Group is selling the claims at a 32% premium to their value as of 30 June 2012. But that is not all. The companies have agreed upon an undisclosed recovery threshold which, if the claims meet, Hutchinson will pay Man an additional $5 million in the future.
Although the original value of the claims has still not been disclosed, Man acquired them for $355 million. Man Group acquired the claims in a move to protect investors whose money in the pie was managed by GLG Partners, a Man Group subsidiary. But it also was placing its bets on the potential market activity that it foresaw. Their acute awareness of the possibility of what was likely to happen has now resulted in a nifty profit of $101 million dollars, might we say, the easy way. Had things gone the other way, there might have been a need for aromatherapy in the Man board room as the directors sweat it out.
Reuters pointed out this morning that, although the first tranche of payouts are to be made this month to unsecured creditors, there is still uncertainty as to whether further payout amounts will be more or less than the 25.2 pence-per-pound in this round.
The important factor for Man is that their foresight in placing their bets has added $140 million to its capital surplus by virtue of the $101 million profit releasing funds reserved to comply with financial regulations.
Man’s share price has never returned to its pre-financial crisis levels above 600.00. While it had hovered in the 150.00 pence range in late 2011 and early 2012, it has been trading in the 80.00 pence range – sometimes higher and sometimes lower – since September. During the past week, shares dropped into the mid-70’s. By 8:15 this morning the share price had jumped to 77.78 from yesterday’s close of 73.75 before falling back to 72.50 by mid-afternoon.
There is no doubt about it. Man made a classy, high-risk play. Let’s see where the company goes now that the focus will have to be more on business as usual.
