Standard Life and Aberdeen Asset Management shares soar after £3.8bn merger deal

The deal, which will create a £660bn asset manager, is the latest move by the active management industry to combat a tide of investors shifting money to low-cost, passive funds

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Standard Life, Scotland’s largest insurer, agreed to acquire Aberdeen Asset Management for about £3.8bn, a deal that would create one of Europe’s biggest fund managers. Their shares soared.

Under the terms, Standard Life shareholders will own 66.7 per cent of the combined group, according to a joint statement on Monday. Aberdeen’s investors will receive 0.757 new Standard Life ordinary share for each share they already own. That values Aberdeen in line with its market value before the talks were disclosed 4 March.

The deal, which will create a £660bn asset manager, is the latest move by the active management industry to combat a tide of investors shifting money to low-cost, passive funds. Aberdeen, hurt by weaker sentiment toward emerging markets, has suffered more than three years of redemptions, leading chief executive Martin Gilbert to freeze salaries and cut costs to protect profitability.

Aberdeen shareholders have no choice but to “accept a nil-premium takeover or risk a material dividend cut, possibly as soon as the interim results in May, due to the weak capital situation,” Paul McGinnis, an analyst at Shore Capital Group Ltd., wrote in a note to clients. “The uncertainty created by an offer and subsequent integration period could be unhelpful in attracting new money from clients for two groups already experiencing net outflows.”

Standard Life jumped more than 9.6 per cent, the most since September 2014, before ending the day up 6.3 per cent at 402.51p. Aberdeen's shares closed up 5.9 per cent at 303.9p.

Mitsubishi UFJ Financial Group Inc., Aberdeen’s largest shareholder with a 17 percent stake, and Lloyds Banking Group Plc, the third-biggest shareholder, support the deal, according to the statement from the companies.

Standard Life’s Keith Skeoch and Gilbert will be co-CEOs of the merged companies, which will be headquartered in Scotland. Standard Life’s Gerry Grimstone will be chairman. Standard Life, based in Edinburgh, employs around 8,335 people and the Aberdeen, Scotland-based asset manager has more than 2,800 workers.

“We strongly believe that we can build on the strength of the existing Standard Life business by combining with Aberdeen to create one of the largest active investment managers in the world and deliver significant value for all of our stakeholders," Skeoch said in the statement.

The companies said the all-share merger reinforced the firm’s commitment to active management and would result in “material earnings accretion for both sets of shareholders, reflecting the significant synergy potential of the merger.”

Aberdeen has had 15 “consecutive quarters of net outflows totaling 105 billion pounds,” McGinnis said. “Given Aberdeen’s deal-making track record, we are not entirely surprised that management have looked for a way to ‘escape’ from its current challenging situation.”

“We believe this merger is excellent for our clients, bringing together the strong and highly complementary investment capabilities of each firm,” Gilbert said in the statement. “This merger brings financial strength, diversity of customer base and global reach to ensure that the enlarged business can compete effectively on the global stage.”