Should you buy Magellan shares before the Barrenjoey merger?

The Magellan Financial Group Ltd (ASX: MFG) share price closed at $9.79, down 3.45%, on Thursday.

Magellan shares have surged since the investment manager announced its proposed merger with Barrenjoey Capital Partners.

The deal values the young investment bank at $1.62 billion.

Magellan was an early backer of Barrenjoey, which launched in 2020 under former UBS bankers Matthew Grounds and Guy Fowler OAM.

Barrenjoey’s current and founding CEO, Brian Benari, was CEO of Challenger Ltd (ASX: CGF) for seven years before joining the start-up.

Magellan owns 36% of Barrenjoey and will pay $903 million for the rest of the company through the issuance of new Magellan shares.

Last week, Magellan completed a $130 million institutional capital raise to help fund the merger.

As we reported, one of Australia’s most successful families was among the participants.

The Lowy family, founder of the Westfield retail empire, invested just over $79 million to take a 5.1% stake in the new entity.

Steven Lowy told the Australian Financial Review (AFR) that they viewed the merged company as “a sound long-term investment”.

Should you buy Magellan shares?

Magellan opened a $20 million Share Purchase Plan (SPP) for ordinary investors today.

Magellan shareholders can apply for up to $30,000 worth of new Magellan shares at $8.45 apiece.

That’s a 13% discount on today’s closing Magellan share price, but bear in mind it has risen 15% since the merger was announced.

The SPP will close at 5pm (Sydney time) on Wednesday, 25 March. Shareholders will vote on the merger on 10 April.

The Magellan board unanimously recommends that investors vote in favour of the deal.

If you don’t already own Magellan shares, you are not eligible to participate in the SPP.

What do the experts think of the deal?

If you are considering buying Magellan shares, via the SPP or on-market, you might be interested in some expert opinions.

Since the merger was announced, CLSA has upgraded its rating on Magellan shares to outperform.

The broker has also increased its 12-month share price target on Magellan from $9.60 to $12.

CLSA analyst Richard Amland said (courtesy AFR):

We think [the transaction] could compare favourably with a young Macquarie Bank.

Amland is not the only analyst to compare Barrenjoey with Australia’s largest listed investment bank.

In a note to clients, Morgan Stanley analyst Andrei Stadnik said the merger set Magellan up “to create a Macquarie-like growth story”.

Morgan Stanley has upgraded Magellan shares to a hold rating and increased its target from $8.10 to $9.20.

Stadnik discussed Barrenjoey’s sharply rising revenue and said he forecasts earnings growth of 92% in FY26 and 24% in FY27.

The analyst commented:

While growth has been broad-based, opportunities in fixed income from US swap dealing and the opening of its Abu Dhabi office to service European Union clients will continue to support growth.

JP Morgan also upgraded Magellan to a hold rating with a $9 share price target.

Macquarie itself maintained a hold rating on Magellan and increased its target from $8.30 to $8.65.

UBS was critical of the deal and reiterated its hold rating on Magellan shares with a 12-month target of $9.90.

In a note to clients, UBS analysts said:

We are surprised the board is supportive of what appear to be relatively unattractive deal terms for Magellan Financial Group.

They added:

The strategic rationale appears limited.

The post Should you buy Magellan shares before the Barrenjoey merger? appeared first on The Motley Fool Australia.

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• Why is the Magellan share price up 10% today?

JPMorgan Chase is an advertising partner of Motley Fool Money. Motley Fool contributor Bronwyn Allen has positions in Magellan Financial Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Challenger. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.