Phoenix buys Standard Life's insurance arm for $4.5 billion

Investors cheered Phoenix Group Holdings’ acquisition of Standard Life Aberdeen’s insurance unit Friday, a deal that will triple the UK company’s life-insurance assets. 

Phoenix rose as much as 7.6 per cent to a record in London after it announced the £3.2 billion ($4.5 billion) deal. As part of the transaction, Standard Life Aberdeen will get almost 20 per  cent of Phoenix’s shares. The purchase marks the third big deal in as many years for Clive Bannister, Phoenix’s 59-year-old CEO. In the process he has created Europe’s largest closed-life fund consolidator, a niche market where companies buy life-insurance assets from other businesses. In Phoenix’s case, those assets will jump to £240 billion as a result of the latest acquisition.

“This is a monster deal for Phoenix and will properly test its integration abilities,” Eamonn Flanagan, an analyst at Shore Capital, said in a note. “The recent acquisitions of Abbey Life and Axa Wealth will have oiled the wheels of its acquisition machine; this deal will give it serious critical mass in the legacy life world.”

Bannister, a former head of private banking at HSBC Holdings and the son of sub-four-minute-mile runner Roger Bannister, has run Phoenix for the last seven years. His purchases include Deutsche Bank’s UK  insurance unit Abbey Life Assurance  for £935 million, and Axa SA’s UK pension and protection business for £375 million. “As we do a transactions like this, our business grows,” Bannister said by phone. The additional cash flows “are extremely long-term and they are extremely stable, which means our income investors collectively benefit from a dividend yield.”

The deal “supports an anticipated increase in our dividend,” Phoenix said. The company also said it will raise about £950 million by selling shares in a rights offer to help finance the transaction.

For Standard Life, which traces its history back to 1825, the deal with Phoenix completes its transformation into an investment company. The transaction may remove a key barrier as it fights to keep managing £109 billion that it invests for Lloyds Banking Group, because it will no longer be competing with the lender’s Scottish Widows unit in insurance.

Phoenix was up 5.3 per cent at 800 pence a 1 pm in London, giving the company a market value of about £3.1 billion. Standard Life Aberdeen rose as much as 4.8 per cent in London, before paring its gain to 1.2 per cent. “We felt that Phoenix was the more natural owner,” Standard Life Aberdeen Co-CEO Martin Gilbert said in a Bloomberg Television interview. “It’s a capital-heavy business and we’re more capital light.” Bloomberg News first reported details of the deal on Thursday. 

Asset managers across the globe are being battered by a move toward cheaper index-tracking funds, driving consolidation in the industry including the combination last year of Standard Life and Aberdeen Asset Management. Gilbert has said the firm wants to expand in the US and Asia.

The assets that Lloyds plans to pull represent almost a fifth of what Standard Life Aberdeen oversees. As it seeks to grow, the fund manager has also looked at buying the US business of ETF Securities, though it faces competition from other bidders, Bloomberg reported last week. “Standard Life has become more of an investment company,” said Laith Khalaf, an analyst at Hargreaves Lansdown.

The withdrawal of Lloyds’s assets highlighted problems that may come up when asset managers compete “for the same pool of business as potential customers. There is therefore some logic in focusing on one rather than the other.”

Under the terms of Friday’s deal, Standard Life Aberdeen will receive 2.3 billion pounds in cash and the Phoenix stake. It also will retain its U.K. retail platforms and advice business. Phoenix estimates the deal will create net synergies of 720 million pounds, including recurring annual pretax cost savings of 50 million pounds.

Standard Life was advised by JPMorgan Chase & Co. and Fenchurch Advisory Partners. Goldman Sachs Group Inc. and Cenkos Securities Plc were joint corporate brokers on the deal. Bank of America Corp. and HSBC advised Phoenix on the acquisition and led the capital increase with the help of JPMorgan and BNP Paribas SA.