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Standard Life confirms Aberdeen takeover talks

Standard Life is in late-stage discussions to acquire Aberdeen Asset Management in an all-stock deal that would create the UK’s largest money manager with £660bn of assets and be worth around £11bn. 

The companies confirmed the talks on Saturday evening in a joint statement that said a deal would “leverage Standard Life and Aberdeen’s combined strengths to create a world class investment company”.

They added that Standard Life would own 66.7 per cent of the combined group, while Aberdeen would owning the remaining one-third. Under the terms of the deal, Aberdeen shareholders would receive 0.757 new shares in Standard Life.

Martin Gilbert, who co-founded Aberdeen in 1983 and remains its chief executive, and Keith Skeoch, who became chief executive of Standard Life in 2015, would become co-chief executives of the new business. 

Mr Gilbert has been searching for a merger partner for months as Aberdeen’s business is disproportionately exposed to emerging markets and his company’s funds have been plagued by investor withdrawals. Talks with Mr Skeoch intensified at the start of the year, according to one person close to the situation.

A new board would be formed with equal representation from the two companies and will be lead by Sir Gerry Grimstone, Standard Life chairman. Aberdeen’s chairman, Simon Troughton, would become deputy chairman. 

Bill Rattray of Aberdeen would become chief financial officer and Rod Paris of Standard Life would serve as chief investment officer.

Aberdeen has a market value of £3.7bn and is almost half the size of Standard Life, which is worth £7.5bn. Rumours that Aberdeen was searching for a deal had spread throughout the London market over the past week, with some traders putting on speculative bets in recent days. 

The companies added: “There can be no certainty that any transaction will occur nor as to the terms on which any transaction may occur.” As the acquiring party, Standard Life has until the close of business on April 1 to formalise its offer to buy Aberdeen under UK takeover rules.

The talks come as midsized asset managers specialising in active management are under pressure from larger competitors such as BlackRock and Vanguard. 

Both Aberdeen and Standard Life Investments focus on actively picking stocks and bonds, an investment style which has come under additional pressure from the rise of cheap index-tracking funds. 

One of their rivals Henderson recently merged with its US competitor Janus Capital in an attempt to fend off these competitive threats. By combining, asset managers often look to rip out redundant costs and also fire underperforming managers. 

A senior fund manager at a rival European investment house, who declined to be identified, said he would expect to see “lots of job losses” in the event of a merger between the Scottish companies. The two companies employ around 9,000 people in total. 

He added: “This would be immensely logical and imaginative, unlike the Janus/Henderson deal, given the strength of Standard Life’s distribution and the manufacturing strength of Aberdeen. I can see how it [would be] well received by both sets of shareholders.”

If a deal were to go ahead between FTSE 250-listed Aberdeen and the investment business of Standard Life, the combined group would overtake Schroders, which oversees £397bn of assets, as the UK’s largest standalone fund company. 

Standard Life has been making a push into fund management over the past 10 years, distancing itself from its insurance roots in the process. Its Gars range of funds has been described as the “fund management success story of the past decade” by analysts at RBC Capital Markets.

But its performance has stuttered over the past year. Gars failed to beat its benchmark in 2016, and customers have been pulling their money out. That has been a drag on Standard Life’s share price, which has underperformed other big insurance companies such as Aviva and Prudential over the past year. 

Aberdeen has also faced significant problems due to its heavy focus on emerging markets, which have been out of favour with investors over the past four years. Last month Aberdeen recorded its 15th consecutive quarter of net outflows, bringing total redemptions from the FTSE 250 asset manager to more than £100bn since the cycle of withdrawals began. 

A number of prominent hedge funds began betting against Aberdeen’s share price in light of those problems, although all short positions against the Scottish fund house were removed in January for the first time in four years. 

Via FT