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Standard Life shares soar on £11bn Aberdeen merger

Standard Life shares soar on £11bn Aberdeen merger

Update: Shares in Standard Life (SL) have jumped to the top of the FTSE 100 after the insurer unveiled the terms of its £11 billion merger with Aberdeen Asset Management (ADN) which will create the UK's largest investment group.

Shares in Standard Life jumped 5.7% to 399.9p, topping the FTSE 100, while Aberdeen rose towards the top of the FTSE 250, up 4.8% at 300p. The FTSE 100 was down 27 points, or 0.4%, at 7,346.

The all-share deal has been done without a premium, with the 0.757 Standard Life shares Aberdeen investors will receive for each of their shares representing a price only a fraction higher than Friday's closing price, although Standard's rally this morning has pushed that higher.

Jefferies analyst Phil Dobbin said the deal was nevertheless positive for Aberdeen shareholders.

'In the first instance, a nil premium merger means Aberdeen shareholders are no better off than at last close,' he said.

'However, on the basis of our standalone forecasts and potential dividend uncertainty, we had a 221 price target. The merger underpins a current share price of 287p, removes dividend uncertainty and could benefit from cost synergies,' he added.

His colleague Anasuya Iyer said the deal could lead to an 11% earnings per share jump at Standard Life and help the group move away from over-reliance on its huge Global Absolute Return Strategies (Gars) fund.

'The combined group could achieve material potential cost saves, for instance by merging their offices across Edinburgh and London and in the longer term merge similar funds across the group,' she said.

'The combined group would benefit from a more diversified mix of business with the increased diversification reducing the market's over-emphasis on Gars.'

Ryan Hughes, head of fund selection at AJ Bell, said the deal was likely to produce 'a long period of fund range consolidation as the combined group looks to cut costs'.

Hubert Lam, analyst at Bank of America Merrill Lynch, sounded a more cautious note. While the deal could lead to an 11% reduction in  annual costs, 'at the top end of recent deals', he warned of the risks it posed to flows out of the combined group's funds.

'We expect Standard Life to see further outflows from its flagship Gars given lacklustre performance and we do not forecast Aberdeen's flows to turn positive through 2017-19,' he said.

'A deal could accelerate outflows near-term given potential disruption, overlap and consultant response.'

News of the deal also sparked a rally in the shares of rival fund groups. Jupiter Fund Management (JUP) joined Aberdeen towards the top of the FTSE 250, up 3.2% at 436.6p, while Ashmore (ASHM), like Aberdeen an emerging markets-focused fund group, rose 2.4% to 368.5p.

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