Fund and job losses likely when Standard Life, Aberdeen merge
Three of Aberdeen Asset's funds could be combined after the company is merged with insurer Standard Life. Analysts at stockbroker and adviser Numis forecast two equity income investment trusts and a closed-ended fund were vulnerable after the £11bn ($13bn) deal was agreed over the weekend. More than 20 other funds run by the two Scottish companies would emerge unscathed, Numis said. Hundreds of jobs are also at risk as the pair prepares to pool resources and combine their names, most likely to Standard Aberdeen. 
Hundreds of jobs could be cut if an £11bn merger of two of Scotland’s biggest companies – Standard Life and Aberdeen Asset Management – goes ahead.

Talks between the companies about a merger were revealed at the weekend and a tie-up could be confirmed as soon as Monday, creating the second biggest fund manager in Europe and the largest in the UK.

In a joint statement confirming the talks, the financial companies said the tie-up would boost profits by creating significant synergies and cost savings. Most of the cost savings are expected to come from eliminating any overlap of back-office operations – such as IT – by cutting jobs and closing offices. Sky News, which revealed the potential merger, reported that the companies could look to cut as much as £200m in annual costs.

Standard Life employs 6,300 people worldwide, including 5,500 in the UK, while Aberdeen has 2,800 employees, including 1,500 in the UK.

Sources close to the deal insisted at the weekend that Standard Life and Aberdeen were looking to merge in order to grow, not shrink, and create a flagship business for Scotland. They said that job losses could be offset by new opportunities created by the expansion of the enlarged company. Standard Life and Aberdeen are understood to have already held talks with the Scottish government about the proposed deal.

The two companies are exploring an all-share merger that would create a business overseeing pensions and savings worth £660bn. They hope to create an investment group with the clout to take on US giants such as BlackRock and Vanguard.

Standard Life shareholders would own 66.7% of the combined company while Aberdeen shareholders would get 33.3%.

The two companies claim the deal would create an investment group with strong brands and offers customers more choice. Standard Life and Aberdeen have reiterated their commitment to active management – where fund managers actively pick stocks and bonds. Active management has come under pressure from the growing popularity of cheaper index-tracking funds and an increase in costs caused by the introduction of stricter regulatory rules since the financial crisis

Faced with the same pressures, UK rival Henderson Global Investors recently agreed to take over Denver-based firm Janus Capital, creating a fund house with assets of more than $320bn (£260bn). Analysts expect middle and back-office roles to be cut as a result of the deal, but a number of senior investment managers have left Henderson amid concerns over cultural differences between the two firms.

Cultural differences will be less of an issue for two Scottish businesses, but any office closures and job losses will trigger concerns north of the border. Standard Life employs 5,000 people in Scotland, mostly at its head office in Edinburgh, while Aberdeen says just under half of its 1,500 UK workforce is based in Scotland.

Standard Life also has a customer service office in Glasgow with 200 people and another office in London in the Gherkin skyscraper, while its rival is based in Aberdeen and has offices in Edinburgh, London, Bristol and Jersey.

The combined group would be run by co-chief executives – Standard Life boss Keith Skeoch and his counterpart at Aberdeen Martin Gilbert. The Standard Life chairman Sir Gerry Grimstone would chair the new board, while Aberdeen’s chairman Simon Troughton would become deputy chairman.

It is likely to be based in Edinburgh and one name being considered for the enlarged company is Standard Aberdeen, although this is yet to be confirmed.

Under the terms of the deal, Aberdeen shareholders would receive 0.757 new Standard Life shares for each Aberdeen share. The planned tie-up would need to be approved by the shareholders of both companies – who have reacted positively so far – and competition authorities.

Gilbert has been on the lookout for a deal for Aberdeen for some time. The company suffered outflows of £10.5bn from its funds in the final three months of last year, taking its total assets to £302.7bn. Gilbert said “investor sentiment stalled” following Donald Trump’s election as US president. Aberdeen specialises in emerging markets and has struggled since investor interest cooled in recent years, prompting Gilbert to freeze salaries and cut other costs.

Standard Life has fared better, and recently posted a 9% rise in operating profit before tax to £723m for 2016. The Brexit vote in June “triggered very substantial [fund] outflows for the industry”, Skeoch said, but the impact on Standard Life was modest. Its assets increased 16% to £357.1bn over the year. However, its flagship investment fund, Global Asset Return Strategies, suffered as investors pulled out £4.3bn.