Martin Gilbert (Photo: Jason Alden/BB)

Standard Life Aberdeen PLC is getting out of the insurance industry after almost 200 years.

The Edinburgh-based company agreed to sell the unit to Phoenix Group Holdings for 3.2 billion pounds ($4.5 billion). The transaction will free up cash for Standard Life Aberdeen to pursue M&A deals as part of its ambition to become a $1 trillion money manager at a time when that part of the businesses is struggling to stem outflows.

Phoenix said it may raise about 950 million pounds by selling shares in a rights offer to help finance the transaction. “We felt that Phoenix was the more natural owner,” Co-Chief Executive Officer Martin Gilbert said in a Bloomberg Television interview. “It’s a capital-heavy business and we’re more capital light.” Bloomberg News first reported details of the deal on Thursday.

Standard Life Aberdeen shares rose as much as 4.8% in London. Phoenix climbed as much as 7.6%.

(Related: Lincoln Financial Agrees to Acquire Liberty Mutual Life Unit)

Asset managers across the globe are being battered by a move toward cheaper index-tracking funds, driving consolidation in the industry, including the combination last year of Standard Life PLC and Aberdeen Asset Management PLC. Gilbert has said the firm wants to expand in the U.S. and Asia.

Standard Life Aberdeen’s growth ambitions were dealt a blow last week when Lloyds Banking Group Plc, the money manager’s biggest customer, said it would pull a mandate to oversee 109 billion pounds for the bank. That’s almost a fifth of the fund manager’s total assets. As it seeks to grow, Standard Life Aberdeen has also looked at buying the U.S. business of ETF Securities, though it faces competition from other bidders, Bloomberg reported last week.

“Standard Life has become more of an investment company,” said Laith Khalaf, an analyst at Hargreaves Lansdown PLC. The withdrawal of Lloyds’s assets highlighted problems that may come up when asset managers compete “for the same pool of business as potential customers. There is therefore some logic in focusing on one rather than the other.”

Under the terms of Friday’s deal, Standard Life Aberdeen will receive 2.3 billion pounds in cash and a stake of almost 20% in Phoenix. It will retain its U.K. retail platforms and advice business.

For Phoenix, the deal turns the closed-life fund consolidator into one of the biggest insurance firms in the U.K. The deal will enhance the company’s cash flows and allow it to pay an enhanced dividend. Phoenix estimates the deal will create net synergies of 720 million pounds, including recurring annual pretax cost savings of 50 million pounds.

The insurer’s “cash flows are extremely long term and they are extremely stable which means our income investors collectively benefit from a dividend yield,” Phoenix Chief Executive Officer Clive Bannister said by phone.

Standard Life Aberdeen also reported on Friday that its clients withdrew a net 31 billion pounds in 2017, following net outflows of about 37 billion pounds the previous year. While outflows from the asset-management unit slowed, institutional investors accelerated redemptions.

Standard Life Aberdeen also announced that Chairman Gerry Grimstone will step down next year.

—With assistance from Anna Edwards.

— Read 5 Things Blackstone Says About Feeding the Annuity Issuers on ThinkAdvisor.


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