Legal & General’s new CEO, the FTSE 100 listed financial services company, made his first major strategic move when he struck a deal with its housebuilding division for £1.16billion in cash. L&G agreed to sell Cala Homes, the London-based housebuilder that was previously owned by L&G, to Sixth Street Partners. Patron Capital is a buyout firm that specializes in property. Both parties are believed to have defeated Persimmon the London-listed housebuilder that had also made a bid.
Antonio Simoes who was appointed to lead L&G in January revealed that he planned to sell Cala to boost the stock value of the company. Simoes (49) succeeded Sir Nigel Wilson who led the company for nearly 12 years, and was responsible for the expansion of financial services. The company’s operations are vast and include asset management, asset assurance, life insurance, pensions and infrastructure investments. Since the Covid Crisis, L&G shares have been stagnant. Simoes is a former Portuguese banker who has taken on the task of boosting the performance of the stock.
L&G announced on Wednesday that they would use some of the proceeds of the Cala deal to boost their share buybacks. This is a way to return capital to investors. Simoes called the deal a “proof of momentum” for his strategy.
L&G receives about £500m upfront, when the sale is completed. The rest of the cash will be paid over five years, on a non-contingent, deferred basis. Cala’s enterprise value includes its debt and is now worth £1.35 billion.
Simoes was “very happy” with the price, compared to the valuation of £605m put on Cala’s equity when L&G assumed full control in 2018. Despite this, the shares of L&G fell by 6 1/2p or 2.8% to 221 3/4p due to disappointment from some investors who were disappointed that only part of the cash was paid at the time of sale.
Simoes explained that “very few people are able to write a check for more than £1 billion in one day, and this is why the payment has been deferred.” Cala is a company based in Edinburgh that employs over 1,300 people. It specializes in building high-end properties in Scotland, Cotswolds, and southern England. Cala sold 2,917 houses last year, and made a pre-tax profit of £112 on revenues of £1.3billion.
The City of Aberdeen Land Association was founded in 1875 and is one of Britain’s oldest housebuilders. It was also the first Scottish company listed on the London Stock Exchange. In 1999, the management team took the business private. Ten years later, the housing crash caused the lender, Lloyds Banking Group to take control of the company through a debt for equity swap.
Patron and L&G acquired Cala in 2013 from Lloyds, valued at £210million. L&G purchased Patron five years after.
The deal is made as the corporate world waits to see what the first budget of Labour’s new government will look like. The tax increases are expected to close the gap that Rachel Reeves (the chancellor) claims the previous Conservative government left in public finances.
Simoes said that he had met investors in Asia and the US recently and did not see any evidence to suggest this deterred investment in the UK.
“The budget is a significant milestone but I do not think people are waiting. I see real capital invested in the economy.”
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