Europe’s second largest asset manager Standard Life Aberdeen (SLA) is selling its life insurance business to Phoenix (PHNX) so it can focus on managing money.
The £11bn merger of Standard Life and Aberdeen Asset Management went live on 14 August last year, creating a behemoth with £679bn of assets under management (AUM).
However, the recent announcement of the termination of Aberdeen’s legacy mandate with Scottish Widows with an AUM of £109bn ‘puts pressure on the original deal economics’ according to Paul McGinnis an analyst at broker Shore Capital.
The sale of Standard Life Assurance is worth £3.24bn of which £2.28bn will be in cash. The asset manager is also receiving a near 20% stake in Phoenix to satisfy the remaining £960m.
The revenue the Scottish Widows contract brought in is equivalent to around 5% of the company’s revenue at £140m.
Its cancellation will almost negate the £200m of cost savings expected by merging the companies and could lead to another round of cost cuts and possibly reduction in staff numbers.
Standard Life Aberdeen is selling a life insurance business that brought in £381m of pre-tax profits in 2017 for £3.24bn. It will also mark the departure of a well-known player in the UK life insurance sector, Standard Life.
However, Standard Life Aberdeen is hoping that Phoenix will employ its services to manage the insurers growing book of AUM. According to Shore Capital, following the sale of Standard Life Assurance, £110bn of AuM transferring to Phoenix will continue to be managed by Standard Life Aberdeen on a three year rolling contract
CHALLENGING TIMES
Now that Standard Life Aberdeen is a pure asset manager, news of its exit from life insurance has overshadowed full year results which are also announced on Friday.
The company’s first results since merging are slightly ahead of analysts’ expectations. The company’s AUM is up 1% to £654.9bn with net outflows of £31bn versus market predictions of £31.9bn.
Its pre-tax profits were flat at £1bn and given the new structure of the business many previous analyst forecasts are irrelevant.
Standard Life Aberdeen has gotten rid of a capital intensive part of its business while still being able to advise on a proportion of its assets. If the company can stem the level of outflows from its funds, a problem that plagued legacy Aberdeen Asset Management for years it could be a great move.
However, the loss of the Scottish Widows mandate is going to hard to replace, helping to explain Shore Capital’s stance of ‘no recommendation’ on the stock.
