Aberdeen Asset Management Plc (ADN) agreed to buy Lloyds Banking Group Plc (LLOY)’s Scottish Widows Investment Partnership unit for 560 million pounds ($903 million), a deal that will create Europe’s largest publicly traded money manager.
Lloyds, Britain’s biggest mortgage lender, will receive a 9.9 percent stake in Aberdeen, the bank said in a statement today. Aberdeen will also start to manage assets on behalf of the bank. Depending on how that venture performs, Lloyds will receive a further 100 million pounds in cash over five years.
The purchase would increase Aberdeen’s assets to about 336 billion pounds, allowing it to surpass Schroders Plc (SDR) as Europe’s biggest publicly traded fund company. It would also mark a reversal of Aberdeen’s strategy to focus on growth without acquisitions and returning cash to investors. Shares of the Scottish firm jumped the most in almost five years in London.
“The benefits of the transaction for Aberdeen are a much stronger U.K. foothold, access to retail investors and diversification away from emerging-market and Asia-Pacific equities and into U.K. equities and fixed-income,” said Peter Lenardos, an analyst at RBC Capital Markets in London who rates Aberdeen an outperform.
Aberdeen climbed 15 percent to 489.70 pence in London trading, the biggest increase since Oct. 2008. Lloyds advanced 1.1 percent to 76.17 pence.
Equities accounted for 56 percent of Aberdeen’s assets under management at the end of June. Of that, the firm invests two-thirds in global emerging markets and Asia-Pacific stocks. Only 2.8 percent of its stock holdings are in the U.K. and 0.9 percent in Europe. By comparison, more than a third of SWIP’s 136 billion pounds of assets are in U.K. and European equities, and it has just 1.7 billion pounds in emerging-market stocks.
“You need a certain amount of size to compete with big Americans,” Aberdeen Chief Executive Officer Martin Gilbert, 58, told Bloomberg Television’s Francine Lacqua today. “Strategically it fulfills a large number of criteria,” he added, commenting on the purchase.
Aberdeen said separately today that underlying pretax profit rose 39 percent from the year-earlier period to 482.7 million pounds in the 12 months through September and assets under management advanced 7 percent to 200.4 billion pounds.
Lloyds CEO Antonio Horta-Osorio, 49, has been seeking to bolster the lender’s balance sheet by selling assets, cutting costs and eliminating jobs following the bank’s bailout by the government in 2008. The sale will add about 11 basis points to Lloyds’s core tier one capital, a measure of financial strength.
The lender purchased Scottish Widows, which runs a life-insurance business and the SWIP fund-management operation, for 7.3 billion pounds in 2000. London-based Lloyds hired Deutsche Bank AG this year to advise on the sale of SWIP.
Bloomberg News reported on Sept. 24 that Gilbert was in talks to buy SWIP. Macquarie Group Ltd., Australia’s largest investment bank, was among other firms weighing bids for the business, people with knowledge of the talks said in September
The sale doesn’t include Scottish Widows, Lloyds’s life, pensions and investment business.
Gilbert said today that there will be “some job cuts in areas where there’s duplications,” without giving further details. More than half of Aberdeen’s assets will be managed from Edinburgh, he told analysts on a conference call today.
The acquisition is Aberdeen’s largest and its third this year. Gilbert has made a series of purchases from U.K. and European banks seeking to raise capital since the financial crisis. The Aberdeen, Scotland-based firm acquired part of Royal Bank of Scotland Group Plc’s fund management in 2010 for 84.7 million pounds and also bought a part of Credit Suisse Group AG’s funds operation for about 250 million pounds in 2008.
Gilbert earlier this year called a purchase of SWIP “highly unlikely.” He said that changed after Lloyds included its solutions business in the sale. The division covers multi-asset investing, asset allocation and private wealth management.
“It was the solutions business that made it attractive,” the CEO said. “We were of the view it was absolutely vital it was included. We wouldn’t have done the deal without that bit.”
Gilbert co-founded the company in 1983, buying out a closed-end fund with 50 million pounds of assets from Aberdeen law firm Brander & Cruickshank, where he worked.
Scottish Widows traces its origins to 1812, when a group of Edinburgh businessmen set up a fund to provide for the wives of British soldiers killed in the Napoleonic wars. The firm set up the Scottish Widows Fund Life Assurance Society in 1815, and early clients included Walter Scott, author of the Waverley novels.
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