A asset managers Standard Life (SL.) and Aberdeen Asset Management (ADN) may have shaken hands on their £11bn merger (6 Mar) but don’t rule out a counter bid for either party.

What are the terms of the deal?

Aberdeen shareholders are getting no premium for a fairly straightforward merger. Standard Life shareholders would own two thirds of the combined operation.

The enlarged group would have a co-CEO structure with Standard Life’s Keith Skeoch and Aberdeen’s Martin Gilbert remaining in place.

Why is the merger being proposed?

Aberdeen’s emerging market focus is not an area where Standard Life has much exposure. Their combined fund ranges could therefore be complementary.

An enlarged entity could have the scale and breadth of expertise and exposure to take on the US giants in the asset management industry.

A less generous assessment is that the merger is an entirely defensive move. Like many peers, both Standard Life and Aberdeen have been hit by the growth of passive investing through products such as exchange-traded funds.

These problems have been exacerbated at Aberdeen due to weak sentiment towards emerging markets and it has seen 15 consecutive quarters of outflows from its funds. Standard Life’s flagship Global Absolute Return Strategies Fund saw outflows of £4.3bn in 2016.

They two companies hope to realise £200m a year cost synergies in the back-office, IT and sales functions three years after completion.

Will it happen and could there be a counter bid?

Both parties have agreed to the plan and major Aberdeen shareholders Lloyds Banking (LLOY) and Japan’s MUTB are backing the deal.

However, Canaccord Genuity analyst Ben Cohen comments: ‘There must be a reasonable likelihood of a counter bid, for one or both of the parties, given accelerating consolidation in the asset management industry.’

Numis has previously suggested Aberdeen has many possible suitors including BlackRock, JP Morgan, Invesco, Prudential, Credit Suisse, Macquarie and Aviva.

What are the implications for earnings?

Investment bank Jefferies estimates the current merger plan would lift Standard Life’s earnings per share by 11% in 2018 if cost savings are fully realised.

What happens now and who might be next?

Standard Life has until 1 April to make a formal approach pending further due diligence.

Numis says: ‘We believe there is scope for further consolidation activity in the active asset management industry, driven by industry headwinds of low expected future investment returns, low organic growth, revenue margin pressure and cost pressures, as well as company specific attractions.’

Other potential takeover targets include Man Group (EMG), Ashmore (ASHM) and Jupiter Fund Management (JUP). (TS)

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