2nd UPDATE: RBC Aims To Tap Wealthy With GBP963 Million BlueBay Buy

Shares in fixed-income fund manager BlueBay Asset Management PLC (BBAY.LN) soared 30% Monday after Royal Bank of Canada (RY) agreed to buy it for GBP963 million, giving the Canadian bank more products to push through its wealth management business.

The offer price of 485 pence a share is a 29.1% premium to BlueBay's 375.70 pence closing price Friday, and BlueBay shareholders will also receive a previously announced dividend of 7.5 pence per share, for a total consideration of 492.5 pence a share. BlueBay directors with shares representing 20.5% of the company's equity have already pledged to vote in favor of the deal.

At 0905 GMT, the stock was up 113 pence, or 30%, at 489 pence. Analysts said the offer is a full valuation, at about 19 times price to expected fiscal 2011 earnings, and that they don't expect another suitor to emerge. The offer price translates to around $1.53 billion or C$1.56 billion.

The transaction comes amid broader consolidation in the global asset management industry, as independent managers look to tap bigger partners' sales channels, and banks are either unloading or beefing up their asset management arms, depending on how much capital they have. Last week, Europe's largest hedge-fund group, Man Group PLC (EMG.LN) completed a $1.8 billion purchase of smaller rival GLG Partners Inc.

"This acquisition will further RBC's strategy to leverage our position as a top 10 global wealth manager, and continue to expand our asset management solutions for the benefit of our clients around the world," George Lewis, group head of RBC Wealth Management, said in a statement. The bank said it will pay for the purchase with cash it has on hand.

BlueBay Chief Executive Officer Hugh Willis said RBC's strength and stability make it "an ideal partner."

BlueBay, with about $40 billion under management at Sept. 30 in long-only and hedge-fund fixed-income strategies, floated on the London Stock Exchange in November 2006 with a valuation of GBP571 million. At that time, it had $8 billion under management, after having formed in 2001 with financial backing from Barclays PLC (BCS) and Shinsei Bank Ltd. (8303.TO).

Co-founders Willis and chief investment officer Mark Poole have agreed to reinvest 25% of the cash they receive from RBC for their shares into BlueBay funds. If they leave within three years, they'll forfeit 40% of those investments.

"BlueBay is a highly attractive asset which, based on this morning's update, is trading well and delivering as expected. In our view, the offer price looks attractive but this must be put in context of 43% earnings growth forecast in 2011, followed by 26% in 2012," KBC Peel Hunt analyst Stuart Duncan said in a note, keeping a buy rating on the stock.

After several years of strong growth, BlueBay's assets under management contracted during the financial crisis from performance losses at its funds and investor outflows. But in just 12 months between Jan. 1, 2009 and Dec. 31, 2009, BlueBay's assets doubled because of a strong rebound in credit markets.

Investors have continued to put in net new money this year, underscoring a surge in bond-fund buying this year.

According to data from EPFR Global, fixed-income funds have had a record year for inflows, with high-yield funds attracting more than $20 billion so far this year and emerging-markets bond funds upping their assets by around $41 billion from net new investor money.

In the nine months to Sept. 30, all bond funds tracked by EPFR had received net inflows of $339.5 billion, compared with $199.02 billion in the same 2009 period.

In a trading update also released Monday, BlueBay said assets rose to $40 billion from $34.3 billion at June 30, because of net investor subscriptions of around $1.2 billion, positive fund performance of $1.5 billion and favorable effects of converting euro-denominated funds into dollars of $3 billion.

Willis last month said the company expects to receive between $5 billion and $8 billion in net new money from investors in its 2011 fiscal year, and Monday said BlueBay continues to be optimistic about its prospects this year.

Meanwhile, RBC has been steadily building its U.K. business, particularly in wealth management where it hopes to replicate its success in Canada in winning business from ultra-wealthy private investors. Last month, Lewis in an interview with Dow Jones Newswires said the U.K. "is rapidly becoming our third home market between Canada and the U.S.," as the bank created a standalone U.K. unit within RBC Wealth.

RBC Global Asset Management, which falls within the Wealth business, has more than C$200 billion in assets under management, while the overall Wealth unit manages about C$250 billion.

-By Margot Patrick, Dow Jones Newswires; [phone]; [e-mail]

(Evelyn Juan in Toronto contributed to this article.)