Aberdeen Asset Management and Standard Life announced this morning they have reached a recommended all-share merger deal, which would create "a formidable player in the active asset management industry globally" running more than £660bn of assets.
After confirming merger talks over the weekend, Aberdeen and Standard Life said an agreement has now been reached and they are recommending the deal to shareholders.
Under the terms of the deal, Aberdeen shareholders would receive a merger ratio of 0.757 new Standard Life ordinary shares for each Aberdeen ordinary share.
Based on this exchange ratio and the closing price of 378.5p per Standard Life Share on 3 March 2017, the merger values each Aberdeen share at 286.5p and Aberdeen's existing issued ordinary share capital at approximately £3.8bn.
Following completion of the merger, Aberdeen shareholders would own approximately 33.3% and Standard Life shareholders approximately 66.7% of the combined group on a diluted basis.
It is intended the merger will be implemented by way of a court-sanctioned scheme of arrangement between Aberdeen and the Aberdeen shareholders. However, Standard Life reserves the right, with the consent of the Panel and Aberdeen or, in certain circumstances, without the consent of Aberdeen, to implement the merger by way of a takeover offer.In the event of a formal merger, Keith Skeoch, CEO of Standard Life, and Martin Gilbert, CEO of Aberdeen (pictured), would become co-CEOs of the combined group, while Bill Rattray of Aberdeen and Rod Paris of Standard Life would become CFO and CIO respectively.
Standard Life chairman Sir Gerry Grimstone would become chairman of the new board, with Aberdeen's chairman Simon Troughton becoming deputy chairman.
It is envisaged the board of directors of the combined group would comprise equal numbers of Standard Life and Aberdeen directors.
A combined group will in due course be branded to incorporate the names of both Standard Life and Aberdeen.
The groups said the two firms have achieved long-term success through different, but complementary strategies that have "delivered attractive growth and returns for clients and shareholders".
It said the merger represents an excellent opportunity to leverage the companies' strengths to create "a world class investment company".
Standard Life added the merger would expect to create an investment group with strong brands, leading institutional and wholesale distribution franchises, market-leading platforms and access to long-standing, strategic partnerships globally.
It would also deliver through increased diversification an enhanced revenue, cashflow and earnings profile and strong balance sheet that is expected to be capable of generating attractive and sustainable returns for shareholders, including dividends.
Another potential benefit, among others, includes material earnings accretion for both sets of shareholders, reflecting the significant synergy potential of a combination, according to the group.
Commenting on the merger, Standard Life CEO Keith Skeoch said: "We have always been clear that it is Standard Life's ambition to become a world-class investment company and that this would be achieved through continued investment in diversification and growth, coupled with a sharp focus on financial discipline. We are therefore delighted that this announcement marks another important step towards achieving that ambition.
"The combination of our businesses will create a formidable player in the active asset management industry globally. 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."
Aberdeen CEO Martin Gilbert said: "We believe this merger is excellent for our clients, bringing together the strong and highly complementary investment capabilities of each firm with a breadth and depth of talent unrivalled amongst UK active managers and positioning the business to meet the evolving needs of clients and customers. 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."
According to Sky News, a formal deal would also involve Lloyds Banking Group - a 10% shareholder in Aberdeen - holding a small minority stake in the business. Aberdeen has a market value of £3.7bn, roughly half the size of the overall Standard Life business.
According to AJ Bell head of fund selection Ryan Hughes, the proposed merger made strategic sense for both parties. "Aberdeen has been overly reliant on Asian and emerging markets for a long time and this has created significant volatility in its business performance, while Standard Life will see those Asian and emerging market assets as highly complementary to its fixed interest and UK asset base," he said.
"If the merger goes ahead, investors can expect a long period of fund range consolidation as the combined group looks to cut costs. This could create a period of uncertainty but until more news becomes available investors would be wise to stay patient."
Hughes saw the merger as a continuation of consolidation in the asset manager industry, adding: "I would expect to see more as the market appears to move towards huge combined groups or small specialist boutiques."
In October, for example, it was announced Henderson Global Investors was undertaking its own merger with US-based Janus Capital to create Janus Henderson, a group with AUM of more than $320bn and a combined market capitalisation of approximately $6bn.
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