Gareth Mackie: Questions remain over Standard Life-Aberdeen Asset Management marriage

The tie-up between Standard Life and Aberdeen Asset Management (AAM) is expected to complete in the third quarter of this year, subject to regulatory and shareholder approval, creating a global investment powerhouse overseeing £660 billion of assets.

Keith Skeoch, Standard Life CEO and Martin Gilbert, Aberdeen Asset Management CEO, After the annoucement of the all share merger
Keith Skeoch, Standard Life CEO and Martin Gilbert, Aberdeen Asset Management CEO, After the annoucement of the all share merger

Edinburgh-based Standard Life employs more than 6,300 people and AAM has some 2,700 staff. However, it is thought that several hundred jobs are at risk in Scotland and in the City of London after the duo pointed to cost savings that could add up to £200 million within three years.

But Standard Life chief executive Keith Skeoch says: “Both organisations have a track record over the long haul of growing strongly and that will bring enhanced job growth. Of course, as we put the businesses together, there will be some synergies but to be honest what we want to do is talk to our people first.

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“This a strategic deal for the long term. It provides a UK and Scottish powerhouse in asset management and when we’re successful, as I’m sure we will be, we’ll be generating good long-term growth and that will generate a sustainable increase in jobs and opportunities for our people.”

When pressed on rumours that the merger could trigger some 1,000 job cuts, AAM boss and co-founder Martin Gilbert says: “We’re just not going to go down that road. There is overlap, but we just can’t talk about job losses.”

Skeoch and Gilbert will become co-chief executives of the new firm. The two started talking about a possible tie-up in early January. Gilbert says it is “pretty prevalent in financial services to have co-heads of global equities or global distribution”, adding that the pair – who have known each other for 30 years and go fishing together – had “complementary skills”.

He says: “We’ve been through the tough part of working together, which is negotiating putting these businesses together. There’ll be another tough phase while we look at the integration but following that I genuinely feel that there’s more than enough for both of us to do here in what’s going to be this huge combined operation.”

Following completion of the merger, Standard Life chairman Sir Gerry Grimstone will become chairman of the combined entity, with AAM chair Simon Troughton becoming his deputy.

Shareholders in AAM, which has been hit in recent years by the storm in emerging markets, particularly Asia, and suffered 15 consecutive quarters of net withdrawals from its managed funds, will own 33.3 per cent of the enlarged group, with Standard Life investors owning the remaining two-thirds of the shares.

Skeoch says: “Both Martin and I, and our respective boards, strongly believe this transaction is in the best long-term interests of our respective companies.”

The new firm will have its headquarters in Scotland, along with about 50 other offices around the world, and Gilbert says the move will enable the enlarged business to “compete effectively on the global stage”.

The Scottish Government has welcomed the deal, with a spokesperson saying: “The proposed merger is a potential vote of confidence in Scotland’s financial services sector. We will be engaging with both companies as the merger progresses to discuss employment and investment in Scotland.

“We welcome the intention to grow the business in Scotland and to build on the expertise and skills of both companies and strengthen Scotland’s reputation for fund and asset management.”

One decision that has yet to be made concerns the name of the combined group. Gilbert says the holding company will include elements of both Standard Life and Aberdeen Asset Management, adding: “There’s still a bit of work to be done; we’ve got to be careful what we call it in case we come up with some acronym that means something in a foreign language that we hadn’t thought of.”

Skeoch says: “Brands are powerful and you need to do proper research on how you create one, because it’s the brand and franchise that connects with our clients. The one thing that the combination will do is build an effective global brand for the UK.”

The City has reacted largely favourably to the confirmed details of the transaction, which could spark further consolidation in the fund management sector.

Ryan Hughes, head of fund selection at AJ Bell, says: “Aberdeen has been overly reliant on Asian and emerging markets for a long time and this has created significant volatility in its business performance, while Standard Life will see those Asian and emerging market assets as very complementary to its fixed interest and UK asset base.

“If the merger goes ahead, investors can expect a long period of fund range consolidation as the combined group looks to cut costs. This could create a period of uncertainty but until more news becomes available investors would be wise to stay patient.”