Standard Life Aberdeen’s completion of its deal with Phoenix Group to shed its life assurance business unlocks hidden value in the company as it transitions into a diversified investment business.
Phoenix Group acquired Standard Life Assurance for £3.28bn ($4.22bn, €3.64bn)in a deal that completed on Friday. Announced earlier this year, the deal sees Standard Life Aberdeen become the largest shareholder with 19.99%.
From life office to diversified investment business
Jason Hollands, managing director at Tilney described the deal as a very savvy transaction. Standard Life Aberdeen’s large stake makes it a “strategic shareholder” in a business that has developed a strong record of cash flow generation, Hollands said.
He added: “The sale of SLA’s capital-intensive insurance business to Phoenix is a really important part of the transformation of SLA from a life office into a diversified investment business and which also unlocks some hidden value in the process.”
Standard Life Aberdeen chairman Gerry Grimstone touted the completion as a “momentous” day towards becoming a “world-class investment company”.
Hollands added: “Phoenix is a specialist in administering closed life books and has the scalable infrastructure in place to handle this business.”
SLA remains preferred asset management partner
Hollands added: “The good news for SLA is that it has put in place a long-term agreement to continue to manage the £48 billion of underlying investment assets as a preferred asset management partner, which although low fee in nature, provides a relatively stable, annuity-like revenue stream.”
In a trading update, SLA confirmed its intention to return up to £1.75bn in aggregate to its shareholders, subject to regulatory approval.
A share buyback of £175m has already begun and around £1bn is intended to be returned by way of a B share scheme, accompanied by a share consolidation. This would be followed by a further share buyback of up to £575m.
SLA has not announced the exact timings for the B Share scheme and consolidation.
As part of the deal, approximately 3,500 Standard Life Aberdeen employees move to Phoenix, with the majority based in Edinburgh.
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