Standard Aberdeen

Picking a Fight Over Scottish Funds

Standard Life isn't paying a premium, but who would?

Aberdeen Asset Management Plc shareholders hoping for something better than Standard Life Plc's takeover offer shouldn't hold their breath. The obstacles to gatecrashing this union between two of Scotland's biggest money managers look high.

At first glance, there are two points of vulnerability. One, Standard Life isn't paying a premium. Two, it expects Aberdeen shareholders to take Standard Life shares in payment. Yet the attractiveness of that paper is diminished by the deal's humdrum strategic logic and poor governance.

Aberdeen's Pain

Fees have been falling as money flowed out of higher-margin equities products

Source: the company

The terms reflect Aberdeen's weak negotiating position. The fund manager had been in play for months, yet no other hard offer emerged. Now a deal has been announced, Aberdeen's shares are showing little expectation of a counter-bid.

Chances of a Counterbid?

The small move in Aberdeen's stock suggests investors don't expect a rival bid

Source: Bloomberg

Imagine an interloper brandishing a cash offer. Including the customary 30 percent-plus control premium, it would value Aberdeen at 4.9 billion pounds. Do-able, on paper at least.

The premium over Aberdeen's undisturbed market value of 3.8 billion pounds would be 1.1 billion pounds. The bidder would have to find about 100 million pounds of annual cost savings to justify that. That would be just 15 percent of Aberdeen's 680 million pounds of annual expenses. Doubtless a really ruthless buyer could cut much more. Plus it might have a strategic reason for wanting to make a bid.

But consider the reaction from Standard Life. Analysts at RBC Capital Markets reckon it could generate annual savings of as much as 300 million pounds from the deal. These could be worth between two and three billion pounds in today's money. With ownership of the enlarged group split 67 percent to 33 percent, Standard Life shareholders would get two-thirds of this boost. But the deal would still make sense financially for Standard Life if it tilted the ownership split a little more in Aberdeen's favor to see off a counter-bidder.

Stronger Together

Combined, the two companies would manage almost half a trillion pounds of assets

Sources: the companies

Note: Data are for 2016

Changing the terms would prompt a rethink of the governance. If Standard Life were to pay a premium, it would be harder for Aberdeen's Martin Gilbert to share the CEO role with Keith Skeoch, as planned.

Worse, a gatecrasher would struggle with politics. Standard Aberdeen would be a Scottish champion in asset management, providing some cover for the likely job cuts the deal will bring.

An interloper, particularly from overseas, would have no such protection. It might have to offer assurances on jobs, which would then limit the savings it could wring from any deal.

There has to be some risk that Aberdeen attracts rival interest. But the likely outcome would be that Standard Life ends up sharing the spoils more equally than now -- rather than Aberdeen shareholders receiving a sack of cash.

--Gadfly's Elaine He contributed graphics.


This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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