Aberdeen has beaten off competition from Macquarie to acquire Scottish Widows Investment Partnership (SWIP) in a deal worth up to £650m.
Aberdeen will issue Lloyds with 131.8m of its shares - worth around £550m at a reference price of 420p apiece - followed by a performance-related payment of up to £100m in cash over the next five years.
The share issuance to Lloyds means the state-backed lender will take a 9.9% stake in Aberdeen. The two companies are to form a strategic partnership as part of the deal.
The announcement sent Aberdeen shares 13% higher, to 482p apiece, at the start of trading this morning.
Today's deal includes SWIP's related private equity and infrastructure businesses, meaning Aberdeen's asset base will swell by a total of £136bn.
The acquisition also includes SWIP's investment solutions division, a separate investment group that provides advice in relation to approximately £15bn of Lloyds' wealth clients' discretionary assets.
The group expects the acquired businesses, which have annualised revenues of £234m, to run at an operating margin of 55% post-acquisition.
That implies significant cost synergies which would make the deal "very cheap", according to broker Numis.
Aberdeen which will become Europe's largest listed fund manager with a total of £336bn in AUM as a result of the acquisition, added it will provide investment and advisory services to Lloyds' insurance companies.
This relates to the "development of Lloyds Insurance's new funds and products, and where appropriate entering into contractual arrangements to deliver more effective client solutions," Aberdeen said.
The acquisition is expected to complete by Q1 2014. Fully separating SWIP from Lloyds is expected to take around 12 months, with Aberdeen incurring related one-off costs of up to £50m.
"This transaction is significant for the long-term prospects of Aberdeen in a number of ways. It strengthens our investment capabilities. [...] We are confident that this transaction will deliver considerable additional value to our expanded client base and this will therefore benefit our shareholders," said Aberdeen CEO Martin Gilbert (pictured).
Aberdeen separately announced a 39% increase in underlying pre-tax profit of £482.7m for the year to 30 September.
AUM rose 7% to £200.4bn, though redemptions from its fixed income and solutions businesses led to full-year net outflows of £2.5bn for the business as a whole.
The build-up to the deal
Aberdeen shares jumped 5% on 24 October after it ended months of speculation by acknowledging it was in discussions over a deal for SWIP.
Shares then dropped last week on reports Australian investment bank Macquarie had tabled a rival £600m cash offer for SWIP.
A purchase of SWIP would be "materially earnings per share enhancing", Aberdeen said earlier this month. The group added the acquisition would reinforce its commitment to a progressive dividend policy.
The deal will help Aberdeen diversify its business away from its emerging market expertise, adding greater expertise in the likes of property and sterling fixed income.
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