Online Stockmarket Trading Update

Snowball Group Limited (SNO) has entered into a binding agreement to acquire 100% of the issued share capital of Officium Capital Limited for a total maximum consideration of $6.5 million, to be paid in cash. Of that amount, a maximum potential “claw-back” payment of $2.5 million is payable to Snowball if certain conditions are not met. The Transaction is consistent with Snowball’s stated strategic intention to enhance its in- house capability in portfolio construction and fund-of-funds management. The Transaction meets this strategic objective and also delivers a number of additional benefits including further diversifying Snowball’s revenue streams, various synergy benefits,  alleviating issues caused by its current ownership structure and positioning Snowball to manage potential regulatory reform. Snowball is acquiring Officium Capital from Officium Group Pty Limited (OGPL).

OGPL and its subsidiaries own approximately 62% of Snowball. Snowball will derive revenue in the form of management fees from the portfolio construction and fund-of-funds business, further diversifying Snowball’s revenue streams. The proposed transaction is expected to be earnings per share accretive in the 2011 financial year. Snowball will acquire the RE capability operated within the Officium Capital business. Having the RE capability will provide Snowball with better control over the pricing of portfolio management and over the prices charged by the underlying fund managers that make up a client’s total investment portfolio. The management fees received by Snowball could over time also replace rebates that Snowball receives from fund managers, better positioning Snowball in the new regulatory environment. Snowball expects to be able to extract revenue synergies from the Transaction over time through the utilisation of the portfolio construction and fund-of-funds capability within Outlook Financial Solutions (OFS), its other advice business, and potentially through distribution to other external or acquired advice businesses. While Snowball will own both the Western Pacific advice business and the portfolio construction and fund-of-funds business following the Transaction, this represents a common vertically integrated business model and alleviates the conflict of interest.

Under the terms of the Transaction, Snowball will pay OGPL $6.5 million in cash on completion, with a claw-back of up to $2.5 million based on agreed net FUM inflow hurdles. The $6.5 million will be funded through an existing debt facility. The amount of any claw-back is determined by reference to the hurdles over the period from 1 October 2009 and ending between 12 and 18 months from then. The claw-back operates to protect Snowball in the event that the Officium Capital business does not achieve the FUM levels, and hence earnings profile, that supports the $6.5 million valuation. If the maximum hurdle is achieved within the prescribed timeframe, no part of the claw-back is payable. If the minimum hurdle is not achieved, the full $2.5 million claw-back is payable. If the hurdle is achieved within this range, the claw-back is calculated on a pro rata basis.

www.sno.com.au