Aberdeen and Standard Life enter into merger discussions

Standard Life Plc jumped the most in more than two years after Scotland’s largest insurer agreed to buy Aberdeen Asset Management Plc, creating a fund manager that oversees 660 billion pounds ($811 billion).

Standard Life said in a statement Saturday that the completion of a merger will be subject to shareholder approval.

Sources said this weekend that advisers to the two sides had raised the idea of either a full merger, or a tie-up between Aberdeen and Standard Life Investments, the Edinburgh-based group’s asset management division.

Standard Life chairman Sir Gerry Grimstone will sit at the top of the new firm, with Aberdeen’s Simon Troughton as his deputy.

Both businesses will be highly complementary as well, with Aberdeen’s core expertise in emerging market equities and Standard Life’s in fixed income.

Both Gilbert and Standard Life’s CEO Keith Skeoch have said they wanted to grow in the USA, where most of the world’s assets are managed, as part of efforts to become more global.

On the asset management side, the new £660bn company will become the largest United Kingdom active manager and the second largest in Europe.

As to the proposed deal itself, there will be no cash changing hands, much to the chagrin of Aberdeen shareholders who have seen the value of their holding shrink by more than 35% since hitting highs in April 2015.

– Cost savings from the merger will be an estimated 200 million pounds a year, to be achieved three years after the merger is complete.

“The explosive growth in passive investing trends has heaped pressure on active managers like Aberdeen and Standard Life and consolidation had to be on the cards”.

Standard Life declined to comment, while Aberdeen could not be immediately reached for comment.

The board of directors of the new firm would comprise equal numbers of Standard Life and Aberdeen directors.

On Monday Peel Hunt reiterated its broker consensus on shares of Aberdeen Asset Management PLC (LON:ADN) giving the company a “Hold” rating. “Gilbert has engineered an escape route for himself, placing himself as co-CEO in an £11bn company”, said a City analyst. “With Standard Life the senior party, Aberdeen shareholders could well argue for a control premium”, Ben Cohen of Canaccord Genuity said. Standard Life’s immediate concern has been the poor performance of GARS, its flagship absolute return fund.

The nil-premium tie-up, which gives Aberdeen a third of the new company, creates a United Kingdom giant with £660 billion under management.

SL shares were up 7% to 405.6p while Aberdeen, having already risen 10% over the previous four weeks, were up nearly 6% to 303.8p in the first few minutes of trading on Monday.

Standard and Aberdeen began serious talks in early January.