TWO of the biggest fund managers in the country are due to announce a tie-up any day now following one of the longest-running courtships in Scottish business.
Speculation surrounding the future of Scottish Widows Investment Partnership (Swip) has been rumbling for months, with Aberdeen Asset Management the most likely buyer. The pair have been in talks in the last few weeks and it looks as though a deal is about to be sealed.
One newspaper was claiming some sort of exclusive yesterday on the worst-kept secret in corporate Scotland when the markets have been on tenterhooks for days awaiting an announcement.
But a deal is not certain and even if Aberdeen does declare its hand – possibly as early as tomorrow – there is a strong likelihood that other suitors will enter the fray.
Aberdeen’s shares took a hit a week ago when investment bank Macquarie threatened to gatecrash Aberdeen’s mainly, or wholly, shares offer with an all-cash bid.
As I said in this column last week, the real winner will be Swip owner Lloyds, which would benefit from a bidding war which looks probable given that Aberdeen’s interest is not universally supported by the markets.
US sources believe Macquarie is prepared to pay £500 million so Aberdeen will need to go higher, possibly to £600m, if it is to see off its rival.
There is concern among some analysts that a deal would not be in Aberdeen shareholders’ interests. Hence the plunge in the share price on 8 November when the stock plummeted to the foot of the FTSE 100 index.
Analysts at Jefferies went so far as to say Aberdeen’s success has been in spite of its acquisitions rather than because of them. Its return on equity in a dozen recent acquisitions has been lower than the cost of buying it – not a promising record for a company about to complete another big deal.
Jefferies calculated that the company has brought in £112 billion in assets through deals since 2005, but they are now worth just £107bn. Added to that, there is a worry that Swip manages products such as defined benefit pensions and endowment funds that are in decline.
On the positive side, if Aberdeen does complete the deal then it will create Europe’s biggest independently-listed fund manager, with £350bn of assets under management.
That would be a startling achievement for chief executive Martin Gilbert, who only a decade ago was on the brink of resigning and his company in danger of collapse following the split capital trust debacle.
For that reason alone, success in pulling off the Swip deal would be a fabulous personal and business triumph.
Plan should end up in the drink
IF THE latest speculation is to be believed it looks like the Scottish Government is being forced to delay its plans to introduce controversial plans for minimum pricing on alcohol.
Legal barriers are proving more testing than the administration expected and the powerful drinks industry is preparing a challenge to the proposal in the Court of Session next year. The Government may also face the UK Supreme Court and the European Court of Justice.
The longer this misguided plan is delayed the better. Raising the price of what is already an expensive commodity is not proven to reduce alcohol consumption. Some of those drinks most commonly associated with irresponsible drinking, such as Buckfast wine, would be unaffected as they are sold above the 50p per unit level, therefore proving that it does not deter those wanting to get sozzled. On the other hand, someone wanting to enjoy a bottle of wine over dinner will have to pay more for the pleasure.
An absurd anomaly in all this is the price of non-alcoholic drinks. In the past few weeks I have paid between £5.60 (Edinburgh’s Cafe Royal) and £8 (Prestonfield House) for a pint of alcohol-free beer. That is at least £2 more than a normal pint and not the way to discourage alcohol intake. It makes the case for a maximum pricing policy for such drinks which, after all, do not incur any alcohol-related taxes.
More seriously, the minimum pricing policy is a gift to the supermarkets which are the real culprits here and stand to pocket a further £140m if the minimum pricing deal is introduced. They need to be curtailed from selling booze too cheaply and encouraging drinkers to get tanked up before they go out for the night. Government policy should be directed at driving drinkers into licensed premises – pubs – which provide a controlled environment where drink is sold in legally defined measures.