Standard Life Aberdeen is to close the door on almost 200 years of history with the sale of its insurance business to Phoenix Group in a £3.2bn deal that will cement the company’s transition to a pure play asset manager.
The Scottish business said the deal was part of its strategy of “building a world-class investment company”.
SLA will receive £2.28bn in cash for its £166bn insurance business. The asset manager will also take a 19.99 per cent shareholding in Phoenix, an insurer that specialises in buying up old books of business, and two seats on its board.
Phoenix will part fund the deal with a £950m rights issue, with the sale is expected to close in the third quarter.
The deal will mark SLA’s exit from its insurance roots, which go back to the formation of the company in 1825. Standard Life merged with asset manager Aberdeen last year with the aim of creating an investment powerhouse with the scale to be a “formidable player” in global asset management.
“This transaction completes our transformation to a capital light investment business,” said Gerry Grimstone, SLA’s chairman. “This transaction represents excellent value for our shareholders, including a comprehensive and mutually beneficial strategic relationship entered into with Phoenix Group, a longstanding partner of the firm.”
SLA also reported its full-year results with assets under management and administration rising 1 per cent to £655bn, after outflows slowed in its asset management arm.
The Aberdeen Standard Investments arm reported outflows of £22.1bn over the year, down from £26.1bn in 2016.
The company, which now expects to generate annual cost savings of £250m from last year’s merger, up from £200m, said it would pay a dividend of 21.3p per share, slightly below analysts’ expectations of 21.39p.
The company confirmed that Sir Gerry, a City stalwart and the key figure behind the Standard Life and Aberdeen deal, will step down at the end of 2019. Sir Gerry is deputy chairman of Barclays bank and a leading candidate to succeed John McFarlane, the UK bank’s chairman.
The SLA insurance deal is transformational for Phoenix, increasing its assets from £74bn to £240bn and giving it a new long-term shareholder. It said the deal would allow it to generate an additional £5.5bn of cash and £50m of annual cost savings.
Eamonn Flanagan, analyst at Shore Capital, said: “This is a monster deal for Phoenix and will properly test its integration abilities.”
Clive Bannister, chief executive of Phoenix, said: “The proposed acquisition establishes Phoenix as the pre-eminent closed life fund consolidator in Europe with more than 10m policyholders and supports a significant increase in Phoenix’s cash generation.”
The two companies already had a close relationship. SLA has managed Phoenix’s assets since 2014 and the latest deal includes a long-term £158bn asset management agreement.
Phoenix said it will maintain the operational headquarters of SLA’s insurance arm in Edinburgh.
Numis said the takeover price valued SLA’s insurance business at 10.5 times earnings, adding that it “does not look a particularly high exit multiple”.
Martin Gilbert and Keith Skeoch, co-chief executives of SLA, have spent most of their careers in asset management and were keen to leave insurance.
Mr Skeoch said 2017 was a “momentous year” for the company, and “great progress” was being made to creating a world-class investment business.
He added that SLA would become the insurer’s “fund manager of choice” allowing it to benefit as Phoenix grows its closed book business.
The deal could also help SLA to keep hold of £110bn of assets that it manages for Lloyds, according to RBC Capital Markets analyst Gordon Aitken. Lloyds said last week that it was reviewing the management of the assets, citing competition concerns.
“The competition angle disappears with Phoenix being the new owner of SLA’s insurance business,” he said.
Mr Gilbert said the company had not “done this transition to solve the competition issues”.
“Hopefully we will get a chance to retender,” he added.
SLA was advised by JPMorgan Cazenove and Fenchurch Advisory Partners. Phoenix was advised by Bank of America Merrill Lynch and HSBC.
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