J.P. Morgan to buy Arch cru assets

J.P. Morgan's Private Equity Limited fund of funds has moved to snap up assets from the former Arch cru portfolios in a deal worth £56.5m.

The board of J.P. Morgan's Private Equity vehicle said in a statement it is buying assets from the Private Equity (PE1) IC cell, as well as from SPL Private Equity (PE2) and SPL Integrated Finance.

J.P. Morgan Private Equity - a Guernsey-based closed ended fund of funds listed on the London Stock Exchange - will pay £36.7m in US dollar equity shares issued at its NAV price for the assets.

The remaining £19.8m given to the former Arch cru cells will be in the form of zero shares in the J.P. Morgan vehicle.

The zeros will give the cells a stake in J.P. Morgan Private Equity, while the £36.7m of US equity shares is expected to be returned to shareholders via the cells as a cash lump sum by year end.

J.P. Morgan's fund has bought the cell funds' interests in Parallel Private Equity, a partnership created in 2006 to buy into UK and European management buy-outs and buy-ins. The cell funds bought stakes in Parallel Private Equity in both 2007 and 2008.

The sale should speed up the process of returning cash to shareholders in the Arch cru funds, which are now managed by Spearpoint.

J.P. Morgan Private Equity's chairman, Trevor Ash, said in a statement: "This acquisition is part of JPEL's strategy of continually repositioning its private equity portfolio."

Both boards of directors have approved the sale of the assets, and the cell funds have now written to shareholders to ask for approval for the deal.

The board of the cell funds urged shareholders to back the sale even though it is being done at a discount to the unaudited net asset value of the Parallel Private Equity holdings of 5.1% and 21.8% respectively for 2007 and 2008.

It said: "This discount compares favourably to the likely discount achieved by selling the company's interest outright in the secondary market for cash."

If the deal goes through, it is understood the Guernsey cells will redeem their stakes in the J.P. Morgan trust over time.

The deal will bring some relief to shareholders who invested a total of about £422m in the troubled Arch cru funds before they were suspended in March 2009.