Crombie quietly confident of victory in Standard Life demutualisation vote
Wednesday 31 May 2006
Standard Life will finally draw a line under 81 years of mutuality today as it receives a mandate from its 2.4 million members to float the company on the London market this summer.
Although the group needs the backing of at least 75 per cent of those who vote to push ahead with the move, the campaign has, so far at least, gone entirely as the management had hoped it would - with the chief executive, Sandy Crombie, now quietly confident of a victory.
Seduced by the prospect of receiving payouts of several hundred pounds at the very least - and much more for the longest-serving customers - barely any of Standard Life's members have bothered vocally to oppose the move. Compared with the passion and tension of the debate six years ago - when the company last considered its future as a mutual - the campaign has been rather a dull affair.
Back then, the pro-demutualisers, led by carpetbagger-in-chief Fred Woollard, found themselves fighting against an impassioned Standard Life board (including the current chief executive), who went to great lengths to persuade members that mutuality was the only way forward for the business. Tensions ran so high the editorial staff of The Scotsman were banned from the company's Edinburgh head office after they dared to fly the flag for demutualisation and the windfall payouts that would have come with it.
With the FTSE 100 then approaching 7,000 points, Standard Life was estimated to have a market value in excess of £12bn, with its members expected to net windfalls averaging £6,000 each. No wonder then that Mr Woollard and his crew managed to muster almost 50 per cent of the vote. It was not enough, however.
Six years on, and Standard Life is an entirely different company. No sooner had it won its fight to stay mutual in 2000 than world stock markets began to plummet, depleting not only the savings of many of its customers, but also wiping out Britain's appetite to place any new money with companies of its ilk.
Then came Equitable Life's collapse, which became the catalyst for a sweeping regulatory overhaul of the financial services industry. To ensure such a situation was never repeated, the Financial Services Authority (FSA) demanded that insurers dramatically increase the amount of capital they kept in reserve - at a time when most were seeing their reserves heavily eroded by the day.
As a result of the new rules, Standard Life - which had remained one of the most loyal to equities throughout most of the bear market - was forced to de-risk its portfolio, and to switch a large proportion of its assets into lower-risk bonds. This saw them crystallise billions of pounds of losses only months before the market hit its floor in 2003.
At the same time, its reputation was being torn to pieces, as the mortgage endowment mis-selling scandal moved into full swing, and it was also forced to land exorbitant penalties on any of its customers who tried to follow their instincts and exit from its ailing with-profits fund.
Even after de-risking its portfolio, the company still fell well short of the FSA's capital adequacy requirements, and, with only limited access to capital, it was finally forced into reconsidering the possibility of a flotation.
Although there have been several influential reports over the past few months trumpeting the value of mutuality - not least from the all-party parliamentary committee on mutual life insurers - it has become almost impossible to argue against demutualisation in Standard Life's case.
Ned Cazalet, a life insurance analyst, says the company would be in dire straits if it limped on as a mutual. "If it doesn't demutualise, it will have a lot of difficulties," he said. "It would have to pare back its business plans for growth significantly. And although it might not close down completely, it would struggle. Any value in Standard Life - its market position, its brand - would be considerably eroded."
While there is a high chance that, like most other former mutuals, the quality of Standard's products will decline once it becomes subject to the pressures of a public listing, its customers are still better off voting for demutualisation and taking their money elsewhere after the float if that becomes the case. To vote for mutuality would be to deny the company its one chance to recover from a terminal illness.
The one problem, which may yet throw a spanner in the works of Standard Life's near-perfect campaign, is the state of the stock market. With the FTSE 100 having fallen as far as 10 per cent from its April peak earlier this month, and volatility having risen significantly, the summer of 2006 is looking an increasingly unattractive time to float a company - especially one whose fortunes depend so heavily on the twists and turns of the market.
Although delaying will cost the company money, it is, however, unlikely to derail the flotation altogether. For Mr Crombie, the most important day is today - and securing the mandate to demutualise.
"This is a profoundly important decision for Standard Life and all those who have an interest in our company's future," he says. "We have explained to members that we believe the demutualisation of Standard Life is in their best interests, and those of other policyholders and the company.
"This is a result of the changes in the economic environment and the reduction in popularity of with-profits in recent years. We sincerely hope that members can give us a decisive mandate for change."
Almost 2.4 million policyholders to receive £1,700 in shares on average
Almost all of the 2.4 million policyholders who were eligible to vote on Standard Life's demutualisation will now receive free shares in the company when it floats on the London Stock Exchange in July.
All eligible members will receive a basic distribution of 185 shares in Standard, which its advisers, Merrill Lynch and UBS, expect to be priced at between 240p and 290p when the company comes to market.
The vast majority will also receive an additional shareholding, the size of which will depend on how long their policies have been held and the size of the plans.
The typical share allocation will be worth £1,700, based on the mid-point of the expected share-price range, though the figure is skewed by verylarge windfalls for long-standing members and those with sizeable policies.
Standard says around half its members will receive shares worth between £490 and £1,000. However, a small number of corporate members, such as pension fund trustees, and a handful of individual policyholders will receive shares worth in excess of £100,000, with the largest windfalls worth more than £500,000.
To be eligible members, Standard customers must still hold a policy with the insurer that was taken out before 30 March 2004. Customers who had policies on that date but which matured after 18 October 2005 may also receive windfall shares if new rules are approved at today's special general meeting.
To receive their windfall shares, all Standard members must have confirmed their membership details with the insurer. Around 700,000 members have yet to do so.
Shares unclaimed at the time of the flotation will be held in trust for 10 years to give members an opportunity to claim. Standard has set up a demutualisation response unit to cope with inquiries from members. Call 0845 275 3000.
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