Scottish investors Standard Life, Aberdeen mull $13.5 billion tie-up

LONDON (Reuters) - Standard Life SL.L and Aberdeen Asset Management ADN.L, two of Scotland's most well-known financial firms, are in talks over an 11 billion pound ($13.5 billion) tie-up to create Britain's largest investment manager.

A worker leaves the Standard Life House in Edinburgh, Scotland February 27, 2014. REUTERS/Russell Cheyne

Fund management companies across the globe have been burdened with rising regulatory costs and pressure to lower fees in the face of weak average returns and growing competition from cheaper, index-tracking rivals, driving consolidation among smaller and mid-sized managers.

Standard Life is roughly twice the size of Aberdeen at 7.5 billion pounds and historically famous for selling insurance, tracing its roots back to the 19th century, while Aberdeen is one of Europe’s largest listed fund firms.

In recent years Standard Life has built up its Standard Life Investments asset management arm. SLI and Aberdeen now manage broadly similar amounts across stocks, bonds and other assets, and together they would manage assets of about 660 billion pounds for a range of retail and institutional clients.

That is more than double those of Henderson Group HGGH.L and Janus Capital Group JNS.N, which last year agreed their own $6 billion all-share merger, as well as Schroders SDR.L, currently Britain's biggest listed asset manager with nearly 400 billion pounds in assets.

The firms, which both have a large presence in Edinburgh as well as offices and sales teams across the world, said without elaborating that they saw “significant synergy potential”, raising the prospect of job losses among their nearly 10,000 workers.

“Further to the recent press speculation the Boards of Standard Life and Aberdeen confirm that they are in discussions in relation to a possible all-share merger of Standard Life and Aberdeen,” they said, confirming an earlier Sky News report.

“The potential merger represents an excellent opportunity to leverage Standard Life and Aberdeen’s combined strengths to create a world class investment company,” they said.

Under the terms of the proposed deal, Aberdeen shareholders would own 33.3 percent of the combined group under the terms of the potential merger, with Standard Life shareholders owning the other 66.7 percent, the companies said.

Aberdeen shareholders would receive 0.757 of a new Standard Life ordinary share for each Aberdeen ordinary share. Other terms of the proposed deal were still being discussed, they said, suggesting much work still needs to be done before any formal offer can be made to both firms and their shareholders.

Standard Life Chairman Gerry Grimstone would become chairman of the board of the combined group, with Aberdeen Chairman Simon Troughton becoming deputy chairman of a board that would have equal numbers of directors from both companies.

Keith Skeoch, chief executive of Standard Life, and Martin Gilbert, his counterpart at Aberdeen, would share the CEO’s role at the new company, while Bill Rattray would become chief financial officer.

A successful takeover offer from Standard Life would mark a positive end to a tough few years for Gilbert, who helped found Aberdeen in 1983, after the firm’s focus on emerging markets left it exposed when the asset class fell out of investor favor.

Last month it reported its 15th straight quarter of outflows, and analysts said they were pessimistic about its prospects for organic growth even as Gilbert himself voiced optimism about the outlook for emerging markets.

Editing by Hugh Lawson