Under the terms of the potential merger, Standard Life shareholders would own 66.7% of the combined group, while Aberdeen shareholders would own 33.3%, according to a joint statement from the two firms.
Standard Life has until 1 April to demonstrate a firm intention to make an offer for Aberdeen, the statement said.
If merged, the combined group’s global AUM will be around $700bn. Standard Life manages assets of around £269.0bn ($330.59bn), while Aberdeen’s AUM is around $374bn, according to their websites.
Both firms expect that the merger would bring scale and drive greater operational efficiency, according to the statement.
FSA sought more information from Standard Life Investments, but the firm declined to elaborate on the potential deal and its impact on both Standard Life and Aberdeen’s businesses in Asia.
“Discussions between the parties remain ongoing regarding the other terms and conditions of the potential merger,” the statement said.
The rationale for the merger — scale and operational efficiency — raises questions.
Both firms are focused on long-term active investment. If the proposed merger is a defensive move, merging with an ETF provider would seem to have been the better move. Capital continues to flow out of active into passive and neither of the firms have substantial passive product offerings.
Proposed management structure
According to the statement, both firms expect that the board of directors of the combined group would comprise equal numbers of Standard Life and Aberdeen directors.
Standard Life chairman Gerry Grimstone would become chairman of the combined group, with Aberdeen’s chairman Simon Troughton becoming deputy chairman, according to the statement.
The CEOs of both firms, Aberdeen’s Martin Gilbert and Standard Life’s Keith Skeoch, would become co-CEOs of the combined group. Bill Rattray of Aberdeen and Rod Paris of Standard Life would become chief financial officer and chief investment officer, respectively.
JVs on the horizon
The talks come at a time when active fund managers globally are facing dwindling sales, rising costs and fee pressures. Capital continues to pour out of active funds and into passive products and the underperformance of actively-management funds versus their benchmarks has been pointed out in various reports from S&P and Morningstar.
Those difficulties have made the industry’s CEOs look at strategic alliances or joint ventures, or plot a merger or acquisition with other firms, according to a PwC survey, as reported.
Example of these activities are the Henderson and Janus Capital merger deal, which is expected to be completed in the second quarter this year, and Amundi’s purchase of Pioneer Investments, which is expected to be completed in the first half.
“It has become harder to be able to invest in the business for future growth, as some of the more mandatory requirements, driven by regulatory change, have eaten into any budget you would have in that,” Andrew Formica, Henderson Asset Management’s CEO, said in the PwC survey report.
“Janus Henderson is about getting back that ability to give us sufficient scale to meet our regulatory and mandatory responsibilities to our clients and the investments we need to make,” he said.
A merger between any two active managers would demand an innovative business model, according to a recent McKinsey & Co report. The consulting firm warned of an asset management shakeout in part due to the rise of passive investing.
Firms maintaining traditional asset management business models will find it increasingly difficult to compete.
Management firms that thrive will be the ones that “restructure their platforms for greater efficiency, develop new levers for value creation, and move beyond security selection to grow new capabilities in risk budgeting, sector selection and asset allocation and embed these as differentiators in their products.”
