Standard Life and Aberdeen Asset Management will be pressed to explain how they will find £200 million of savings in their proposed £11 billion merger.
The companies confirmed the planned tie-up to the stock market today in what will be the biggest ever merger between two Scottish companies.
The £660 billion controlled by the combined group would see it easily overtake Schroders – which oversees around £400bn of assets – as the UK’s largest fund manager.
But there is also an expectation that the proposed cost savings will come from job cuts. The two companies employ some 9,000 staff, mostly in Scotland.
A statement issued just after 6.30pm on Saturday stated that they were in talks. The two companies announced to the London Stock Exchange this morning that they had agreed terms. Standard Life shareholders will hold 66.7% of the combined group and Aberdeen shareholders 33.3%.
They said a tie-up has a “compelling strategic and financial rationale” and is an excellent opportunity to leverage Standard Life and Aberdeen’s combined strengths to create “a world class investment company.”
Standard Life chairman Sir Gerry Grimstone will become chairman with Aberdeen’s chairman Simon Troughton becoming deputy chairman.
Keith Skeoch, CEO of Standard Life (pictured above left), and Martin Gilbert, CEO of Aberdeen, are to be co-CEOs of the combined group. Bill Rattray of Aberdeen and Rod Paris of Standard Life will become CFO and CIO respectively.
The board will comprise equal numbers of Standard Life and Aberdeen directors.
Analysts said the two were merging to fend off competition from rivals as margins reduce and that both were still potential targets for a third party to gatecrash the deal. There are added concerns about the co-CEO arrangement.
Aberdeen’s two biggest investors, Mitsubishi UFJ Trust and Banking and Lloyds Banking Group have both given non-binding statements of support to vote in favour of the planned takeover, which the companies say they expect to complete in the third quarter of 2017.
The statement said: “Standard Life and Aberdeen’s long-term success has been built through differentiated, but complementary, strategies that have delivered attractive growth and returns for clients and shareholders.
“The potential merger represents an excellent opportunity to leverage Standard Life and Aberdeen’s combined strengths to create a world class investment company.”
The merger is expected to be effected by means of a court sanctioned scheme of arrangement of Aberdeen.
Under the terms, Aberdeen shareholders will receive a merger ratio of 0.757 new Standard Life ordinary shares for each Aberdeen ordinary share.
Discussions between the parties remain ongoing. The statement said there can be no certainty that any transaction will occur nor as to the terms on which any transaction may occur. Standard Life must make a firm offer or walk away by 5pm. on 1 April.
Aberdeen has also been examining a number of substantial transactions in the US, including the purchase of Pioneer Investments’ US business.
It has grown partly through acquisition, notably absorbing Scottish Widows Investment Partnership.
Edinburgh-based Standard Life is valued at £7.5 billion, and Aberdeen at £3.7bn.
The former is steadily turning from an assurance company to a wealth manager with its asset management division becoming the main driver of the business.
Mr Skeoch, helped build Standard Life Investments, created in the late 1990s, which is due to expand from its George St home into new offices in nearby St Andrew Square.
Mr Gilbert (right), who is also a director of Sky. He has been at the company since its creation in the early 1980s and rebuilt it after it was threatened by the scandal surrounding split-cap trusts in the early part of this century.
It recently suffered a big outflow of funds from emerging markets which has sharply reduced its assets under management by 25% to £100bn.
Aberdeen and Standard Life say the potential merger would:
Harness Standard Life and Aberdeen’s complementary, market leading investment and savings capabilities which would deliver a compelling and comprehensive product offering for clients covering developed and emerging market equities and fixed income, multi-asset, real estate and alternatives.
Establish one of the largest and most sophisticated investment solutions offerings globally, positioning the Combined Group to meet the evolving needs of clients.
Reinforce both Standard Life and Aberdeen’s long-standing commitment to active management, underpinned by fundamental research, with both global reach and local depth of resources.
Create an investment group with strong brands, leading institutional and wholesale distribution franchises, market leading platforms and access to long-standing, strategic partnerships globally.
Bring scale, as one of the largest active investment managers globally with £660bn of proforma assets under administration and financial strength, transforming the Combined Group’s ability to invest for growth, innovate and drive greater operational efficiency.
Deliver through increased diversification an enhanced revenue, cash flow and earnings profile and strong balance sheet that is expected to be capable of generating attractive and sustainable returns for shareholders, including dividends.
Result in material earnings accretion for both sets of shareholders, reflecting the significant synergy potential of a combination.