Aberdeen explores £11bn Standard Life merger

(c) Sky News 2017: <a href="http://news.sky.com/story/aberdeen-explores-16311bn-standard-life-merger-10789468">Aberdeen explores £11bn Standard Life merger</a>
 

Two of Britain's biggest fund managers have been exploring an £11bn merger that would create a global powerhouse overseeing more than £600bn-worth of assets.

Sky News has learnt that Aberdeen Asset Management (Frankfurt: 899502 - news) and Standard Life (LSE: SL.L - news) have been holding talks about a combination of the two Scotland-based companies.

If the discussions progress towards a formal deal, it would be among the most significant City mergers for years, bringing together two companies employing more than 9,000 people.

It would also involve a merger of two of Scotland's most important companies, attracting close scrutiny from politicians amid intensifying calls from nationalists for a second independence referendum.

City insiders said that a deal was far from certain to be finalised, adding that Aberdeen had also been examining a number of substantial transactions in the US - including the purchase of Pioneer Investments' US business.

One source said that the premature disclosure of the talks could lead to the negotiations being terminated.

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.

Aberdeen has a market value of £3.7bn, roughly half the size of Standard Life, with one source saying this weekend that any deal was likely to be an all-paper transaction.

Under one scenario said to be on the table is for a combined company to be run jointly by Martin Gilbert and Keith Skeoch, the chief executives of Aberdeen and Standard Life respectively.

One source mentioned a prospective annual cost savings figure of £200m, suggesting that job losses could be among the consequences of a deal.

Sir Gerry Grimstone, Standard Life's chairman, would be expected to chair a merged group, although it is unclear how long that would be for.

He is expected to take over from John McFarlane as chairman of Barclays (LSE: BARC.L - news) when the latter steps down - a move expected by 2019.

Both Aberdeen and Standard Life, which actively manages about £270bn globally, have had difficult recent periods to weather.

Aberdeen has seen fund outflows accelerate amid deteriorating investor sentiment towards emerging markets, the company's stronghold.

It has reported 15 consecutive quarters of net withdrawals, and now manages just over £300bn of assets - down from more than £400bn at the peak.

Some analysts have predicted that Mr Gilbert - who is also a director of Sky plc (Frankfurt: 893517 - news) , the owner of Sky News - will be forced to cut Aberdeen's dividend, although when he updated the City on trading in January, he struck a positive tone.

"Investor (LSE: 0NC5.L - news) sentiment had been improving steadily in the early part of the quarter, but stalled following the US presidential election result with investors putting asset allocation decisions on hold," he said.

"Encouragingly, despite the market volatility our equity strategies produced strong returns for the year.

"While growing interest in a number of our strategies is likely to continue to be masked, in the short-term, by significant withdrawals by a small number of clients, I am encouraged by the progress being made.

"Overall Aberdeen remains in good shape, we have a strong balance sheet, a global client base and wide range of capabilities to meet the needs of investors."

Standard Life, meanwhile, has been struggling to improve the performance of GARS, a so-called absolute return fund which aims to make money for investors in all market conditions.

GARS, which stands for Global Absolute Return Strategies, produced a negative return in 2016 even as the FTSE-100 index soared.

If Aberdeen and Standard Life did merge, it would involve Lloyds Banking Group - a 10% shareholder in Aberdeen - holding a small minority stake in the business.

Aberdeen declined to comment on Saturday (Shenzhen: 002291.SZ - news) , while Standard Life could not be reached.

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