Standard Life Plc, Scotland’s largest insurer, agreed to acquire Aberdeen Asset Management Plc for about 3.8 billion pounds ($4.7 billion), a deal that would create the U.K.’s largest active manager. The stocks soared in London trading.
Under the terms, Standard Life shareholders will own 66.7 percent of the combined group, according to a joint statement on Monday. Aberdeen’s investors will receive 0.757 new Standard Life ordinary share for each share they already own. That values Aberdeen in line with its market value before the talks were disclosed March 4.
The deal, which will create a 660 billion-pound (or $811 billion) asset manager, is the latest move by the active management industry to combat a tide of investors shifting money to low-cost, passive funds. Aberdeen, hurt by weaker sentiment toward emerging markets, has suffered more than three years of redemptions, leading Chief Executive Officer Martin Gilbert to freeze salaries and cut costs. Standard Life’s investment unit also had outflows last year.
Aberdeen shareholders have no choice but to “accept a nil-premium takeover or risk a material dividend cut, possibly as soon as the interim results in May, due to the weak capital situation,” Paul McGinnis, an analyst at Shore Capital Group Ltd., wrote in a note to clients. “The uncertainty created by an offer and subsequent integration period could be unhelpful in attracting new money from clients.”
Standard Life’s shares jumped more than 9.6 percent, the most since September 2014, and were trading at 400.30 pence at 9:23 a.m. in London. Aberdeen rose as much as 8.2 percent, the most since June.
Mitsubishi UFJ Financial Group Inc., Aberdeen’s largest shareholder with a 17 percent stake, and Lloyds Banking Group Plc, the third-biggest shareholder, support the deal, according to the statement. Standard Life Chief Executive Officer Keith Skeoch told journalists on a conference call that the insurer’s shareholders he had spoken to were also supportive.
Skeoch and Gilbert will be co-CEOs of the merged companies, which will be headquartered in Scotland with Standard Life’s Gerry Grimstone as chairman. The deal is expected to bring about 200 million pounds in cost savings within three years and both CEOs declined to comment on any job losses.
Standard Life, based in Edinburgh, employs around 8,335 people and the Aberdeen, Scotland-based asset manager had more than 2,800 workers in September.
The companies said the all-share merger would result in “material earnings accretion for both sets of shareholders.” The deal will give the group the scale to build a global business and drive global growth, Skeoch said on a call with reporters. Liberum Capital Ltd. analyst Justin Bates, who upgraded Aberdeen to buy on Monday, estimated the deal will add about 19 percent to the merged companies’ earnings.
Aberdeen has had 15 “consecutive quarters of net outflows totaling 105 billion pounds,” McGinnis said. “Given Aberdeen’s deal-making track record, we are not entirely surprised that management have looked for a way to ‘escape’ from its current challenging situation.”
There was no pressure from shareholders to do a deal, Gilbert said on the call with reporters. Serious talks with Standard Life began in the first week in January, he said. The deal is expected to close in the third quarter.
“We didn’t have to do the deal, we have no debt and 500 million pounds of cash,” Gilbert said. “Let me be absolutely clear — we had a very good future if we wanted as an independent company.”
Gilbert said in May that he had resisted buyer interest because “being independent is a massive benefit.” The CEO has previously said he wanted to do a deal similar to Henderson Group Plc’s cross-border merger with Janus Capital Group Inc. The firm weighed a bid for Pioneer Global Asset Management and dropped it saying the price was too high.
Analysts were mixed on whether a counter bid for Aberdeen would emerge. Shore Capital said there was a low chance given that Mitsubishi and Lloyds bank, which own a combined 27 percent, support the deal, while Ben Cohen at Canaccord Genuity said another offer was a “real possibility.”
“There must also be a reasonable likelihood of a counter-bid, for one or both of the parties, given accelerating consolidation in the asset management industry,” Cohen wrote on Monday before the deal was agreed. “Aberdeen shareholders could well argue for a control premium” above the current offer.