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Job losses likely as Standard Life and Aberdeen reveal £11bn merger terms Standard Life and Aberdeen seek to tie in key staff in £11bn merger
(about 4 hours later)
Standard Life and Aberdeen Asset Management are to offer lucrative lock-ins to key staff to stop them walking out following their £11bn tie-up. Standard Life and Aberdeen Asset Management are to offer lucrative lock-ins to key staff to stop them walking out following their £11bn deal to create a fund management powerhouse.
The bosses of the two companies revealed the schemes were being implemented as they attempted to justify their joint leadership of the enlarged business. The deal is intended to create a fund management powerhouse but has sparked fears of job cuts in the Scottish-based businesses. The deal to create Britain’s biggest fund manager with £660bn under management has sparked fears that key staff will quit and that hundreds of jobs will be cut in the enlarged businesses as it seeks to cut £200m a year in costs.
Keith Skeoch, chief executive of Standard Life, and Martin Gilbert, chief executive of Aberdeen, are to become co-chief executives. Both insisted their skills were complementary and that it was not unusual for financial services firms to have co-heads. Even so, analysts were not convinced. It has also raised questions about how Keith Skeoch, chief executive of Standard Life, and Martin Gilbert, chief executive of Aberdeen, would work together as co-chief executives of the enlarged Scottish-based company.
“We have grave concerns over the structure of the board,” said Eamonn Flanagan, an analyst at Shore Capital. “To us, a single CEO calling the shots and retaining overall responsibility is critical in all such transactions…we wait to see how the chemistry between Skeoch and Gilbert develops.” As they unveiled the deal, amid speculation that rivals offers could emerge, the pair insisted they got on well and that their skills were complementary - although analysts were not convinced.
He said the fact the the board would have equal number of members from each company – despite the fact Standard Life would comprise two-thirds of the enlarged entity – showed that the focus was turning to fund management and away from Standard Life’s traditional life insurance business. “We have grave concerns over the structure of the board,” said Eamonn Flanagan, an analyst at Shore Capital. “To us, a single CEO calling the shots and retaining overall responsibility is critical in all such transactions … we wait to see how the chemistry between Skeoch and Gilbert develops.”
Gilbert, whose firm has suffered 15 consecutive quarters of investors withdrawing their cash, refused to disclose how many jobs would be lost as the enlarged company aimed to cut £200m a year from costs, at a cost of £320m. Flanagan said the equal number of members from each company on the board – despite the fact Standard Life would comprise two-thirds of the enlarged entity – showed that the focus was turning to fund management and away from Standard Life’s traditional life insurance business.
“We just can’t talk about job losses,” said Gilbert, insisting estimates of 1,000 were “grossly exaggerated”. Standard Life employs more than 8,000 staff and Aberdeen, which bought the Scottish Widows fund management arm of Lloyds Banking Group three years ago, almost 3,0000. Gilbert, whose firm has suffered 15 consecutive quarters of investors withdrawing their cash, refused to disclose how many jobs would be lost as the enlarged company admitted it would spend £320m to cut costs.
The aim is growth, and the creation of a “powerhouse in asset management” able to take on huge US rivals such as BlackRock and Vanguard, and with £660bn of savings and pensions to manage in 80 countries. “We just can’t talk about job losses,” said Gilbert, insisting estimates of 1,000 were “grossly exaggerated”. Standard Life employs more than 6,000 staff and Aberdeen, which bought the Scottish Widows fund management arm of Lloyds Banking Group three years ago, almost 3,000.
Gilbert showed analysts a slide of all the sporting events sponsored by both companies and quipped “It’s always been one of my ambitions to sponsor Andy Murray” – the Scottish tennis player backed by Standard Life.
Both business are key to Scotland’s financial services industry, which has been facing questions about its future in the wake of Brexit. The Scottish government has been in contact with both companies and said this would continue as “the merger progresses to discuss employment and investment in Scotland”.
“We welcome the intention to grow the business in Scotland and to build on the expertise and skills of both companies and strengthen Scotland’s reputation for fund and asset management,” a Scottish government spokesperson said.
The companies insisted the aim was growth, and the creation of a “powerhouse in asset management” able to take on huge US rivals such as BlackRock and Vanguard, and with £660bn of savings and pensions to manage in 80 countries.
Both firms are battling their own problems and talks between the two executives began in January.Both firms are battling their own problems and talks between the two executives began in January.
“There is more than enough for both us to do,” said Skeoch, who has been chief executive of Standard Life since 2015. Gilbert created Aberdeen, which is known for its focus on emerging markets, more than 30 years ago.“There is more than enough for both us to do,” said Skeoch, who has been chief executive of Standard Life since 2015. Gilbert created Aberdeen, which is known for its focus on emerging markets, more than 30 years ago.
Skeoch said the two men liked each other – they go fishing together – and easily reached agreement about a number of issues during the six weeks of merger talks. Skeoch said the two men liked each other – they have known each other for 30 years and go fishing together – and easily reached agreement about a number of issues during the six weeks of merger talks.
“This is a people business, we both recognise this is not about personalities this is about clients … about shareholder value,” he said. There was no information about how much the two chief executives would be paid but Gilbert told analysts that schemes were “being implemented” to retain crucial staff. It is not yet clear how the two brands will be used, or what the new business will be called.
There was no information about how much the two chief executives would be paid but Gilbert told analysts that schemes were “being implemented” to retain crucial staff. It is not yet clear how the two brands will be used, nor what the new business will be called. Sir Gerry Grimstone, the Standard Life chairman, will chair the enlarged company
Sir Gerry Grimstone, the Standard Life chairman who will chair the enlarged company, said: “We will be successful as long as we continue to put our clients. customers, employees and good governance at the heart of what we do.” . Aberdeen chairman Simon Troughton is to be deputy chairman while his colleague Bill Rattray and Standard Life’s Rod Paris will become finance director and chief investment officer respectively.
Aberdeen chairman Simon Troughton is to be deputy chairman while his colleague Bill Rattray and Standard Life’s Rod Paris will become finance director and chief investment officer respectively.
The deal involves no cash and shareholders in Aberdeen will receive 0.757 new shares, valuing the company at £3.8bn.The deal involves no cash and shareholders in Aberdeen will receive 0.757 new shares, valuing the company at £3.8bn.
Both said the deal was based on strategic logic but analysts at Cantor Fitzgerald, said: “Given the headwinds faced by the asset management industry from passive investing, pricing and regulatory pressures, this looks like a defensive deal.” Both said the deal was based on strategic logic but analysts at Cantor Fitzgerald questioned this argument. “Given the headwinds faced by the asset management industry from passive investing, pricing and regulatory pressures, this looks like a defensive deal.”
The fund management industry is under pressure to cut costs because of increased use of investments tracking the index – so-called passive investing – which means firms are becoming bigger. The fund management industry is under pressure to cut costs because of increased use of investments tracking the index – so-called passive investing – which means firms are becoming bigger. The bigger the index tracking fund the cheaper it is to operate, making active fund managers – such as stock pickers – appear less profitable.
Aberdeen’s two biggest investors – Japan’s Mitsubishi and Lloyds Banking Group – have both agreed to back the deal.Aberdeen’s two biggest investors – Japan’s Mitsubishi and Lloyds Banking Group – have both agreed to back the deal.
Standard Life’s shares rose 6% to 400p while Aberdeen’s were up 4% at 299p. Aberdeen’s shares were trading at 500p two years ago. Standard Life shareholders will receive the already announced 13.35p-a-share dividend and Aberdeen’s previously announced 7.5p-a-share payout.Standard Life’s shares rose 6% to 400p while Aberdeen’s were up 4% at 299p. Aberdeen’s shares were trading at 500p two years ago. Standard Life shareholders will receive the already announced 13.35p-a-share dividend and Aberdeen’s previously announced 7.5p-a-share payout.
Standard Life
Founded: 1825Based: EdinbughStaff: 6,300 (5,500 in the UK)Business: A life insurance business with an increasing focus on fund management, including the single biggest fund in the UK, the £26.3bn Global Absolute Return Strategies fundSponsorship: Tennis champion Andy Murray, worldwide partner of the Ryder Cup and a principal partner of the British and Irish Lions rugby team
Aberdeen Asset Management
Founded: 1983Based: AberdeenStaff: 2,800 (1,600 in the UK)Business: Investing in emerging marketsSponsorship: Golf, men’s and ladies’ Scottish Opens, 12 ski schools across Switzerland, Melrose Sevens rugby