More capitulation than conquest, Standard Life’s virtually nil-premium proposal for taking over Aberdeen Asset Management tells shareholders all they need to know about the pressures facing the investment industry. Only significant cost savings would give shareholders in both companies a reprieve from their respective underperformance versus peers over the past year.
Be under no illusion. Despite the bluster about the creation of a “world class” investment company (pro forma assets under management £660bn), this defensive deal is about stripping out costs as much as the likely scale achieved. Based on the undisturbed share prices, the offer of 0.757 Standard Life shares for each of Aberdeen’s means a tiny premium, lower than what Amundi paid for Unicredit’s Pioneer asset management division recently.
Not that Aberdeen would not come away with prizes. Despite owning a third of the new company, and contributing roughly that in profits, it receives half the board seats. Keith Skeoch, Standard Life’s chief executive, and Aberdeen’s Martin Gilbert will become joint chiefs of the new entity. This structure looks odd and justifiably raises questions among shareholders.
The timing of the announcement is also telling. Last month Standard Life reported £4.3bn in net outflows from its flagship £48bn Global Absolute Return Strategies range of funds, key to the company’s strategy over the past decade. Gars has trailed its required return of Libor plus 5 per cent for the past five years. Indeed, only a fifth of Standard Life’s funds kept pace with their benchmarks last year. Aberdeen, meanwhile, has suffered £105bn of withdrawals since 2012 because of a combination of poor performance, emerging market weakness and a stronger US dollar.
Some blame competition from low-cost passive funds. US index specialist Vanguard led all fund houses with $200bn of net inflows last year. Mr Gilbert notes the main battleground has been in US large-capitalisation equities, less so in emerging markets. Still, scrutiny of fees is growing.
Proposed cost reductions of £200m annually tot up to over £1.3bn, taxed and capitalised. About half that was covered by share price increases on Monday. And that assumes investment assets do not fall much more. Expect plenty of active management of costs in the year ahead at this new company.
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