Standard Life and Aberdeen Asset Management in £11bn merger agreement

BY Fraser Tennant

In a deal that will lead to the creation of a world class investment group, Standard Life plc and Aberdeen Asset Management PLC, two of the UK’s biggest investment companies, have reached agreement on the terms of an all-share merger valued in the region of £11bn.

Described as having a compelling strategic and financial rationale due to the complementary strengths of the two firms (which oversee assets worth £660bn), the merger, once complete, will see Standard Life shareholders own 66.7 percent of the combined entity while Aberdeen shareholders will own 33.3 percent.

The boards of Standard Life and Aberdeen believe the merger will: (i) create an investment group with strong brands, leading institutional and wholesale distribution franchises, market leading platforms and access to longstanding, strategic partnerships globally; (ii) 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; and (iii) result in material earnings accretion for both sets of shareholders, reflecting the significant synergy potential of the merger.

"We believe this merger is excellent for our clients, bringing together the strong and highly complementary investment capabilities of each firm with a breadth and depth of talent unrivalled amongst UK active managers and positioning the business to meet the evolving needs of clients and customers”, said Gilbert, chief executive of Aberdeen Asset Management PLC. “This merger brings financial strength, diversity of customer base and global reach to ensure that the enlarged business can compete effectively on the global stage."

To be headquartered in Scotland, the combined company will be branded to incorporate the names of both Standard Life and Aberdeen Asset Management.

"This merger brings together two fine companies and I'm greatly honoured to be asked to chair the combination”, said Sir Gerry Grimstone, chairman of Standard Life. “I look forward to welcoming our new colleagues. We will be successful as long as we continue to put our clients, customers, employees and good governance at the heart of what we do."

In addition, the merger is expected to harness Standard Life's and Aberdeen's complementary, market leading investment and savings capabilities which would deliver a compelling and comprehensive product offering for clients covering developed and emerging market equities and fixed income, multi-asset, real estate and alternatives.

Simon Troughton, chairman of Aberdeen, concluded: "The strategic fit is compelling and will facilitate significant investment in the business to support growth, innovation and a drive for greater operational efficiency.”

The Standard Life/Aberdeen deal is subject to a number of conditions, including shareholder approvals.

News: Standard Life and Aberdeen agree merger

Investors see UK as important for growth despite Brexit concerns, claims new report

BY Fraser Tennant

The UK is an important country for growth, with Brexit and uncertainty surrounding the future relationship with the EU doing little to deter investors, according to a new PwC report published this week.

The report, ‘Inside the mind of the investor… What’s next?: Global survey of investor and CEO views’, based on interviews and data from over 550 global investment professionals and over 1300 chief executives, reveals that the UK moved up from fourth place in last year’s survey to equal third with Germany this year, behind only the US and China. 

Other key findings in the report include: (i) London being viewed as the second most important city for growth prospects over the next 12 months, behind New York and followed by Beijing, Shanghai and San Francisco; (ii) investors focused on the technology and financial industries, putting the UK among the top three countries for growth; and (iii) 45 percent of investors and analysts say they were very confident about global economic growth (compared to 22 percent in the 2016 report).

“It’s striking that the UK is now seen as more important for growth, particularly by investment professionals, moving up from fourth place last year to joint third place with Germany this year,” said Hilary Eastman, head of global investor engagement at PwC. “Importance could be interpreted in a positive light – that the countries selected would be those expected to grow most or fastest.”

“On that basis, the Brexit vote and all the uncertainty surrounding the UK’s future relationship with the EU appear not to be deterring investors. However, some investment professionals saw that ‘importance’ could also be interpreted in a negative sense – that problems and greater volatility in the UK, for example, could have an important effect on slowing down companies’ growth.”

The report also notes that investment professionals perceive geopolitical uncertainty to be the top threat to company growth prospects, with protectionism, the future of the eurozone and social instability also ranked highly. In addition, almost one in five of think technology will completely reshape competition within five years, while 85 percent expect automation to reduce company headcount.

Ms Eastman concluded: “Investment professionals around the world are upbeat about global economic growth prospects, despite recognising the shifting political landscape in which companies operate. But investors do think it is becoming harder for business leaders to balance competing in an open global marketplace with trends toward closed national policies.”

Report: ‘Inside the mind of the investor… What’s next?: Global survey of investor and CEO views’

Deutsche Börse deal dead

BY Richard Summerfield

The proposed $30.1bn merger of equals between the London Stock Exchange (LSE) and Deutsche Börse, a deal which would have created Europe’s biggest stock exchange, is seemingly dead after coming under intense antitrust scrutiny.

According to the LSE, any merger between the two rivals should now be considered “highly unlikely” given that the company will be unable to meet antitrust conditions set by the European Commission. As a result, it seems that the on again, off again merger, which failed to get off the ground in both 2000 and 2005, will again end unsuccessfully.

The LSE was unable to commit to the divestiture of its majority stake in the Milan stock exchange, which the European Commission had stipulated had to happen in order to win regulatory approval.

In a statement, the LSE said: “The LSE board believes it is highly unlikely that a sale of MTS could be satisfactorily achieved, even if LSE were to give the commitment. Moreover, the LSE board believes the offer of such a remedy would jeopardise LSE’s critically important relationships with these regulators [in Italy] and be detrimental to LSE’s ongoing businesses in Italy and the combined group, were the merger to complete.”

The LSE had previously agreed to sell part of its clearing business, LCH, to satisfy competition concerns before the Commission demand the sale of its MTS shareholding earlier in February. The LCH business was sold to the company’s European rival Euronext for €510m.

The proposed merger between Deutsche Börse and the LSE has been controversial from the outset. A merged Deutsche Börse/LSE could easily compete with the Chicago Mercantile Exchange and ICE in the US, as well as the Hong Kong stock exchange in Asia. However, European scepticism around the deal has been fierce. The proposed union has drawn yelps of derision from a host of other European countries, including France, Belgium, Portugal and the Netherlands, many of which are fearful for their own stock exchanges owned by Euronext.

News: LSE scuppers Deutsche Boerse merger hopes by rejecting EU demand

Mind the gap – still

BY Richard Summerfield

There have been some marked improvements in the workplace for women in the UK in recent years, according to a new report from PwC – ‘Women in Work Index 2017’ – which is based on data from 2015. The report notes that not only have female employment rates improved, there has also been a narrowing of the gender pay gap and a reduction in the gap between male and female labour force participation rates.

However, the progress made of late can only be seen as a qualified success, according to PwC. The report, in which PwC measures levels of female economic empowerment across five key areas – the gender pay gap, female labour force participation, the gap between male and female labour force participation, female unemployment and female full-time employment rate – indicates that in many OCED countries, there is still considerable work to be done.

There has been some significant progress made in a number of jurisdictions, however. The UK, for example, now ranks 13th out of 33 OECD countries, second to Canada in the G7 in terms of female economic empowerment. However, the UK still lags behind on the number of female workers in full-time employment, ranking 30th out of 33 countries, well below the OECD average. Indeed, the UK has only a small proportion of women in full-time work, leaving it in 13th place behind the Nordic countries, Poland and Canada. However, it is ahead of France, Germany, the US, Japan and Italy.

The portion of UK women in full time work is not the only issue, however. It is important for women to be employed in a greater variety of industries, including those that offer better career opportunities. "It's not just about getting more women working, but also about getting more of them into high quality jobs that offer career progression and flexibility," said Yong Jing Teow, an economist at PwC.

While the gender gap does appear to be closing, it will take time to achieve gender parity. According to PwC’s estimates, in the UK at least, the gap will finally close in 2041. Across Europe, however, progress could be quicker. PwC’s data suggests that Poland, Luxembourg and Belgium could close their respective gaps within the next 20 years. The US will not see its gap closed for at least another 50 years. Germany will not see its gap closed for another century, if current historical trends continue, and Spain’s  may not close for over 200 years.

Closing the gender pay gap would be lucrative in the long term. Achieving pay parity in the OECD, for example, could increase total female earnings by $2 trillion.

Report: PwC Women in Work Index 2017

M&A appetite strong in CEE/SEE, say dealmakers

BY Fraser Tennant

Mergers & acquisitions (M&A) activity in Central, Eastern and South-Eastern Europe (CEE/SEE) is strong, with 98 percent of dealmakers in the region indicating they will continue to invest in the market, according to a new report from Mergermarket and Wolf Theiss.

The ‘Corporate Monitor’ report, which canvassed the opinions of 150 senior-level executives about their experiences and outlook on M&A in the CEE/SEE region, also includes in-depth analysis of macroeconomic developments and M&A trends in each CEE/SEE country.

The report found that M&A activity in CEE was lively in 2016 amid global economic uncertainty, with deal value reaching €38.3bn, up 62 percent from €23.6bn in 2015. Furthermore, in line with global trends, deal volume remained fairly even year-on-year, with 507 deals compared to 516 in 2015.

Additionally, the report found that: (i) Poland, Austria and the Czech Republic are seen as the most attractive markets for buyers; (ii) the leading driver for M&A in the region is a target’s intellectual property or technology suggesting that CEE is developing strong innovation; (iii) the main challenge for dealmakers in specific countries stems from the competitive bidding environment according to 51 of senior-level executives; and (iv) investors expect distressed opportunities to grow in 2017, which should be of particular interest to buyout firms.

“Firm GDP growth in most CEE countries has sparked investor confidence in the region,” says Sonja Caymaz, research editor at Remark, part of the Mergermarket Group. “There was strong appetite for TMT, real estate, consumer and energy targets, especially from private equity (PE) firms which led to a record value for PE deals in 2016 (103 deals worth a combined value of €11.3bn – the highest deal value for PE in the region ever recorded by Mergermarket). There is still plenty of room for digitalisation in consumer and manufacturing businesses, and the ability to grow strong local brands across borders. As elsewhere in Europe, inbound activity from China into the CEE region also doubled compared from 2015.”

Horst Ebhardt, head of the corporate and M&A group at Wolf Theiss, concluded: “CEE/SEE saw a very strong M&A market in 2016 and this trend is widely expected to continue in 2017 – despite uncertainty in assessing the policy approaches of the new US administration, the outcome of elections in France and Germany and the UK’s structuring of its exit from the European Union.”

Report: M&A SPOTLIGHT: CEE - WOLF THEISS Corporate Monitor FY 2016