Standard Life and Aberdeen Asset Management deal: How the City is reacting

Caitlin Morrison
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City analysts are dissecting the plans announced by Standard Life and Aberdeen this morning (Source: Getty)

Standard Life and Aberdeen Asset Management have unveiled more details of their planned merger, sending shares in both groups up at the open.

Standard Life's stock was up 7.24 per cent at pixel time, while Aberdeen had risen 5.73 per cent.

After reports emerged over the weekend, the companies confirmed their intentions to combine this morning, with Standard Life aiming to own two thirds of the new firm and Aberdeen controlling the remainder.

This is how the City has reacted:

When old meets new

The merger could bring stability to Aberdeen, in a "marriage of the old and the new, both in terms of the companies’ heritage and their main areas of strength", said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"In particular, Aberdeen’s emerging markets focus dovetails well with Standard Life’s capabilities in developed markets, though there are considerable areas of overlap between the two fund groups, particularly in multi-asset, fixed income and property strategies," Khalaf added.

"Standard Life brings some stability to the table for Aberdeen, which has seen 15 quarters of consecutive outflows, and which will also now benefit from distribution through Standard Life’s workplace pension and wrap platform. Aberdeen meanwhile offers Standard Life a quick route to the big boy’s table by almost doubling assets under management.

"Active managers are feeling the pinch when it comes to fund charges, thanks to the gauntlet laid down by the passive price war, and by targeting £200m of annual cost savings, both companies will go some way to relieving some of that pressure on the bottom line. However that does unfortunately spell job losses for the combined group."

Big, but not necessarily beautiful

That's how Panmure Gordon analyst Barrie Cornes described the deal. He said: "It smells like a defensive merger that will put both companies 'in play', with Aberdeen the most likely to fall victim if the merger does not complete.

"There are of course well documented pressures on asset managers to cut costs and it follows Henderson's merger with Janus Capital announced in Oct 2016. Aberdeen has had net outflows for the last 15 consecutive quarters and lost £100bn of net outflows since the issues in emerging markets began."

Makes sense

"The proposed merger between Standard Life and Aberdeen makes strategic sense for both parties," Ryan Hughes, head of fund selection at AJ Bell.

"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 very complimentary to its fixed interest and UK asset base.

"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 added: "This merger is a continuation of consolidation in the asset manager industry and I would expect to see more as the market appears to move towards huge combined groups or small specialist boutiques."

Political element

"We see a strong industrial logic for the merger in terms of scale, capabilities and cost savings," said Ben Cohen, at Canaccord Genuity.

"There will be a political dimension to the creation of a Scottish national champion, not least because the bulk of any cost savings will come North of the border.

"There must also be a reasonable likelihood of a counter-bid, for one or both of the parties, given accelerating consolidation in the asset management industry. The potential merger will dominate upcoming newsflow, with final terms or other interested parties key uncertainties."

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