ABERDEEN Asset Management has revealed that it is in talks to buy rival Scottish Widows Investment Partnership (Swip) from Lloyds Banking Group in a deal that would create the largest listed fund management group in Europe.
A deal, which could value Edinburgh-based Swip at around £500 million, would take Aberdeen’s funds under management to almost £350bn.
Although Aberdeen stressed there was no certainty that a deal would be done, it outlined the likely structure of a transaction that would be funded by handing new shares in Aberdeen to Lloyds and cash payments conditional on future performance. It also said it would involve the formation of a strategic partnership with Lloyds.
But industry sources said Aberdeen is not the only party interested in the business and the bank expects to make a decision on a preferred bidder by the end of the year.
Aberdeen said that the transaction would offer substantial cost savings and would boost profits, supporting the company’s commitment to dividend increases and the return of surplus capital to shareholders.
Although Aberdeen has been touted in recent months as a possible buyer of Swip, the company has previously played down speculation of its interest and the announcement came as something of a surprise to analysts.
Owen Jones at Shore Capital pointed out: “If the deal were to go ahead, it would be against all recent management rhetoric and, indeed, against market expectations.”
Peter Lenardos of RBC Capital Markets also said he was surprised given Aberdeen’s past statement that it is “extremely unlikely” to bid for Swip.
But Jones said he believed Aberdeen would be attracted by the “significant potential cost savings within Swip”.
He said: “Aberdeen has a long and successful track record of acquiring fund management groups, integrating them and stripping out costs.
“Aberdeen could well be the winner again here.”
Aberdeen is one of a number of potential buyers that are thought to have looked at the business since Lloyds hired Deutsche Bank in April to advise on a sale. The list includes US-based Ameriprise and BlackRock, and Australian investment bank Macquarie.
A sale at around £500m would leave Lloyds with stake of around 10 per cent in the combined business.
Lloyds, which is 33 per cent owned by the UK government, is selling non-core assets to meet regulatory demands to raise more capital.
Although Aberdeen has a track record of successfully acquiring businesses, the announcement received a muted reaction from some analysts.
In a note headed “there goes the organic growth story”, Mark Williamson of Peel Hunt said : “We are not blown away by the prospects of this deal and, with the stock having rallied in recent weeks, it is now trading within 5p of our fair value target.”
RBC’s Lenardos also said he had a “mixed reaction” due to the potential impact on dividend growth.
But the market responded positively to the news with shares in both Aberdeen and Lloyds rising.
They closed up 24.8p, or 5.83 per cent, at 450.4p in Aberdeen and up 2.21p at 80.12p at Lloyds.