UPDATE 5 – Scottish investment giants Standard Life and Aberdeen Asset Management confirmed in a joint statement they are in discussions about a possible all-share merger that would create a global fund management powerhouse overseeing about £660 billion ($811 billion) of assets.
“Under the terms of the potential merger, Aberdeen shareholders would own 33.3% and Standard Life shareholders would own 66.7% of the combined group,” the companies said.
Standard Life has a stock market value of roughly £7.5 billion and Aberdeen Asset Management has a stock market value of roughly £3.7 billion.
Under UK takeover rules, Standard Life must by April 1 either announce a firm intention to make an offer for Aberdeen or announce that it does not intend to make an offer.
Standard Life CEO Keith Skeoch and Aberdeen CEO Martin Gilbert would become co-CEOs of the combined group.
A merger would create an Edinburgh-based flagship company for Scotland which would be the biggest fund management firm in the UK and the second biggest in Europe.
Some analysts warned of hundreds of potential job losses if the merger takes place, with the combined firm looking to make up to £200 million in annual costs — but sources close to the deal said the combined firm would look to grow, not shrink.
Standard Life chairman Gerry Grimstone would become chairman of the combined group with Aberdeen chairman Simon Troughton becoming deputy chairman.
Bill Rattray of Aberdeen would become chief financial officer and Rod Paris of Standard Life would become chief investment officer.
“It is envisaged that the board of directors of the combined group would comprise equal numbers of Standard Life and Aberdeen directors,” said the firms.
Aberdeen shareholders would receive 0.757 new Standard Life ordinary shares for each Aberdeen ordinary share.
“Discussions between the parties remain ongoing regarding the other terms and conditions of the potential merger,” said the companies.
The companies employ about 9,000 between them.
In their statement the firms said a merger had “compelling strategic and financial rationale.”
“Standard Life and Aberdeen’s long-term success has been built through differentiated, but complementary, strategies that have delivered attractive growth and returns for clients and shareholders,”the firms said.
“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 a merger would “deliver through increased diversification an enhanced revenue, cash flow and earnings profile and strong balance sheet that is expected to be capable of generating attractive and sustainable returns for shareholders, including dividends.”
They said a merger would result in “material earnings accretion for both sets of shareholders, reflecting the significant synergy potential of a combination.”
Skeoch has successfully shifted Edinburgh-based Standard Life’s focus away from traditional life insurance and pension products to fund management in recent years.
Aberdeen Asset Management was co-founded in 1983 by Gilbert who has driven the aggressive growth of the investment firm which is known for its international and emerging markets activities.
Last month, Standard Life said its 2016 operating profit before tax rose 9% to £723 million and assets under administration rose by 16% to £357.1 billion.
Aberdeen has suffered recent outflows from its funds and last month the firm said its assets under management fell about £9.4 billion to £302.7 billion in the three months to December 31.