The Magellan Financial Group Ltd (ASX: MFG) share price rose 10% on Thursday and is now up 23% on this week's big news.
That news is the proposed merger with Barrenjoey Capital Partners, an investment bank that Magellan helped finance in its early days.
On Monday, Magellan announced the proposal while in a trading halt.
On Tuesday, the financial services group announced the completion of a $130 million institutional capital raise to help fund the deal.
Magellan shares ripped after resuming trading, and today, the financial stock continues to climb as investors digest the details.
The Magellan share price reached an intraday high of $10.53 on Thursday, up 10% on Wednesday's closing value.
This makes the Magellan share price the top riser of the S&P/ASX 200 Index (ASX: XJO) today.
Magellan shares are currently fetching $10.46 apiece, up 9.25%.
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The history of Barrenjoey
Magellan is a founding shareholder in the six-year-old investment bank, and already owns a 36% stake.
The financial services company will acquire the remaining shares in Barrenjoey for $903 million, funded with new Magellan shares.
Barrenjoey was launched in 2020 by co-executive chairs Matthew Grounds and Guy Fowler OAM, who left UBS to start their own show.
Barrenjoey's current and founding CEO, Brian Benari, had been CEO of Challenger Ltd (ASX: CGF) for seven years before joining the start-up.
Magellan sank $150 million of seed money into Barrenjoey on the recommendation of former chief investment officer, Hamish Douglass.
Could the merger end Magellan's struggle?
The Magellan share price has struggled since Douglass resigned for health reasons in December 2021.
The company has also lost several major clients.
They included St James Place in December 2021, which represented about 12% of Magellan's revenue at the time.
Funds under management have fallen from $113 billion in July 2021, when the Magellan share price was about $50, to $40 billion today.
Meantime, Grounds, Fowler, and Benari have built an impressive business.
Barrenjoey generated $522 million in revenue in CY25, with adjusted NPATA of $108 million.
The merger deal gives Barrenjoey an implied value of $1.62 billion on a 100% equity basis.
In a statement, Magellan said of Barrenjoey:
The business has consistently exceeded expectations with strong organic growth, attractive returns on capital, and an entrepreneurial culture that positions the combined group for continued expansion.
Benari will be Group CEO of the merged company, and Grounds and Fowler will continue as co-executive chairs of Barrenjoey.
In a statement, Benari said:
The merger will benefit our clients, through deepening our global distribution, expanding our balance sheet and diversifying our product offering.
We are particularly excited about the opportunities for our Private Capital arm who will bring together our expertise in private assets with MFG's global distribution capability and infrastructure.
Extended escrow arrangements for key Barrenjoey players
Magellan shareholders may be reassured by the voluntary escrow and vesting arrangements that imply that Benari, Grounds, and Fowler are in this for the long haul.
Benari, Grounds, and Fowler have agreed to extended escrow arrangements for their new Magellan shares of up to nine years.
The weighted average term is approximately six years post-announcement. The trio will own just under 32% of the merged company.
Magellan said:
These arrangements are designed to ensure continuity of leadership, and alignment with long-term shareholder outcomes with the Barrenjoey Parties to which the restrictions apply only permitted to sell their Consideration Shares after their respective dealing restriction period ends.
In a statement, Grounds and Fowler said:
We are very excited about this next step and the opportunities that it provides for our clients and our staff.
Magellan share price snapshot
The Magellan share price is now up 30% over the past year but down 73% over the past five years.
