Aberdeen Asset Management Plc said it’s in talks to buy Scottish Widows Investment Partnership from Lloyds Banking Group Plc, a deal that would make it Europe’s largest publicly traded money manager. The stock jumped.
Aberdeen would pay for the acquisition by issuing new shares to Lloyds, the Scottish money manager said in a statement today. It would also make further payments in cash over time depending on the performance of SWIP, which oversees about 146 billion pounds ($236 billion).
The purchase would increase Aberdeen’s assets to about 350 billion pounds, allowing it to surpass Schroders Plc 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. Chief Executive Officer Martin Gilbert had previously called an acquisition of Scottish Widows Investment “highly unlikely.”
“Aberdeen is once again an acquisition-driven growth story and not a dividend yield/capital-return story,” Peter Lenardos, an analyst at RBC Capital Markets who rates Aberdeen outperform, said in a note to clients today.
The stock climbed 5.8 percent to 450.4 pence in London trading, the biggest gain in more than a month. Lloyds rose 2.8 percent to 80.12 pence.
The money manager said that it’s also in talks to start a “strategic partnership” with Lloyds, without giving further details. Spokesmen for both companies declined to comment.
“The company would expect any transaction agreed to be materially earnings per share enhancing,” Aberdeen said in the statement. “It would also reinforce the company’s commitment to a progressive dividend policy and to return surplus capital to shareholders over time.”
Aberdeen paid 11.5 pence a share in dividends in 2012, and Lenardos said he expects the firm to pay 15 pence this year.
“While Aberdeen is likely to continue to increase its dividend, it will likely do so more incrementally, and share buybacks will occur ‘over time,’ which likely indicates not in the short-term,” Lenardos said.
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 assets are in U.K. and European equities, and it has just 1.7 billion pounds in emerging-market stocks.
“A balance to the strength of Aberdeen’s emerging markets business would probably be a good thing,” Stuart Duncan, an analyst at Peel Hunt with a buy rating on the Scottish firm, said in a telephone interview. “Their U.K. equities business is relatively small and they could do with some more assets.”
Bloomberg News reported on Sept. 24 Aberdeen was in talks to buy SWIP. Macquarie Group Ltd., Australia’s largest investment bank, was among companies weighing an offer for SWIP, people with knowledge of the talks said last month.
Lloyds CEO Antonio Horta-Osorio, 49, has been seeking to bolster the company’s balance sheet by selling assets, cutting costs and eliminating jobs following the bank’s government bailout in 2008. The London-based lender purchased Scottish Widows, which runs both a life-insurance business and the SWIP fund-management operation, for 7.3 billion pounds in 2000.