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Another step in Standard Life’s global quest

Terry portrait with tieThere were whispers in the market last week that a predator was taking a close interest in Aberdeen Asset Management. Until late afternoon on Saturday it looked like more idle City gossip.

The company was rumoured to be talking to Standard Life about a merger, said Sky News, whose board of directors just happens to include Martin Gilbert, chief executive of Aberdeen.

Within a couple of hours the two companies issued a statement confirming that they were considering a tie-up. We now know they have been talking since the first week of January. It’s also clear that this is a Standard Life takeover of its northern rival.

The terms have been agreed and the Edinburgh company’s shareholders get two-thirds of the company. There is a clear indication as to who is in control when the jobs are dished out and Standard Life also gets the chairmanship, Sir Gerry Grimstone adding another notch to his non-executive bedpost.

The takeover panel has acknowledged the senior partner in the deal, giving Standard Life until 1 April to confirm its offer.

After that, there will be no fooling around in trying to make this work. Mitsubishi UFJ Trust and Banking and Lloyds Banking Group, Aberdeen’s two biggest shareholders, have given it their blessing, which makes it odds-on to get a full recommendation.

So how does the proposed deal stack up?

The joint statement refers to a “compelling strategic and financial rationale” in creating a “world class investment company”.

It’s been clear for some time that Standard Life has moved from its roots in assurance and pensions to becoming a broader wealth manager. The business is now focused around Standard Life Investments and an insider recently told me there has been talk of getting the company re-classified as an asset management business. This deal may just confirm such a transition.

It has made big strides in this direction since SLI was formed in 1996, creating a self-functioning division within the group which has grown arms and legs these past 20 years, with assets under management as of last June standing at £269bn. Aside from organic growth, including expansion into third party mandates, it added Glasgow-based Ignis Asset Management in a move that was a step-change in its ambitions.

The newly-combined Standard Life/Aberdeen group will control £660bn, comfortably ahead of the current biggest UK fund manager, Schroders. Notwithstanding some slippage in the performance of its flagship GARS fund, Standard Life is on an upward trajectory and this deal edges its closer to the trillion dollar mark that will give it some real global clout. It lalso comes amid a wider consolidation in the market.

Henderson Global Investors is merging with US-based Janus Capital to create Janus Henderson, a group with more than $320bn under management and a combined market capitalisation of $6bn.

There is also an opportunistic factor for Standard Life. While its growth produced forecast-busting pre-tax operating profits of £723m last time, Aberdeen has been on the back foot. Since its acquisition of Scottish Widows Investment Partnership in 2013 it has been faltering. It recently announced the 15th consecutive quarter of net outflows due to investors losing faith in emerging markets, a key area of activity for the company.

It admitted last month that it has suffered more than £100bn of net outflows since the tail-off in emerging markets began. That represents a substantial fall from its peak of £400bn.

Aberdeen CEO Martin Gilbert has seen a few highs and lows since he helped set up the company in 1983, including the split-cap trust debacle in the early 2000s which, by his own admission, he was lucky to survive.

He will be co-chief executive with Standard Life’s Keith Skeoch in the new set-up but one wonders who will really be wearing the trousers in the partnership.

Gilbert has engineered at least a short-term future for himself in the combined group, but with the company plunging to such a nadir the board is effectively giving away the company at a nil-premium to the current share price.

Skeoch built his own reputation at Standard Life Investments and it is worth noting that he retained his role as CEO of the business when he replaced David Nish as group CEO.

This was not a case of Standard Life saving a substantial salary but realising that the company was becoming more focused on its asset management business and that it made sense for him to keep one hand on the tiller.

The statement issued about the merger referred to complementary businesses and market leading capabilities, but beneath the hype the newly-constituted board and its shareholders will know that Aberdeen had reached the point where it needed a helping hand.

 

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