* Interim dividend cut in half to tackle debt
* CEO Grisay says not worried by activist investor interest * Shares down 7 percent (Adds CEO, analyst comments, share price
By Claire Milhench
LONDON, Aug 26 (Reuters) - UK fund house F&C Asset Management halved its interim dividend to reduce debt, hammering its shares, as it sought to turn around the business and diversify into higher margin revenue streams.
With its acquisition of retail-friendly Thames River Capital about to close, F&C is racing to reposition the firm under the beady eye of activist investor Edward Bramson whose Sherborne vehicle has acquired a stake of more than 11 percent over the past month.
This had pushed the share price up to 63 pence last week but by 0909 GMT on Thursday, F&C's shares were down 6.9 percent to 57.5 pence after it said it was cutting its dividend to 1 pence from 2 pence to deleverage and ensure it can provide sustainable 150 percent coverage from underlying earnings.
"This will give us a lot more resilience if the environment were to become very difficult," Chief Executive Alain Grisay told Reuters.
He said the board decided it would be prudent to use the cash to deleverage the company amid increased volatility in the equity and forex markets. Assets under management at end-June fell 2.6 percent from end-2009 to 95.3 billion pounds due to the weakening of the euro.
Around 55 percent of F&C's assets are denominated in euros.
Underlying pretax profit doubled in the first half to 12.4 million pounds as a client shift into higher-margin products offset net outflows from its funds. Total net outflows were 605 million pounds ($932.9 million), although the firm pointed to positive momentum in client sales.
REALITY CHECK
Analysts at Execution Noble said it was "a bad set of interims" which "disappointed on every front".
Steve Keeling, an analyst at Singer Capital Markets, said the share price was adjusting to fair value. "The company has had a reality check on its debt position."
He added there were other asset managers with better earnings momentum and fund flows yielding about 6 percent, so he was not that surprised. He said that a dividend cut would be one of the first things an activist investor might suggest, so F&C could be trying to pre-empt Sherborne.
Bramson has a record of implementing sweeping operational and management changes at companies he sees as undervalued.
Grisay said he had not yet spoken to Sherborne about its intentions but would aim to discuss the results with them in the coming month, as would be typical for any large shareholder. He denied that he was worried.
"No-one here is ringing any sort of panic button," he told Reuters. "We are quite comfortable that we have a strategy that is working... for us it is business as usual."
Grisay pointed to 2.8 billion pounds of new business in the first half and a pipeline of 1.9 billion pounds of institutional business that is won but unfunded for the second half, across a range of products and countries.
"This was never going to be a quick fix but we believe we are now gaining momentum," said Grisay.
The average fee rate on new institutional business in the half was 24 percent higher than that on the outflows.
"For the first time in five years we have had a net positive contribution from flows for the first half," said Grisay. (Editing by Jon Loades-Carter)