Standard Life, Aberdeen agree merger, seek 200 million pound savings

By Simon Jessop and Carolyn Cohn

LONDON (Reuters) - Investment managers Standard Life and Aberdeen agreed an 11 billion pound ($13.5 billion) merger that should save 200 million pounds a year in costs, pressuring rivals to follow suit as industry margins sag.

The deal comes as asset managers which charge a higher fee to make active investment decisions face growing competition from low-cost index-tracking rivals and rising regulatory costs.

By 0845 GMT, shares in Standard Life were up around 7 percent and Aberdeen by more than 5 percent, at the top of their respective indexes. Rivals Jupiter Fund Management and Ashmore were also higher as traders eyed further deals among small and mid-sized firms.

"We see a strong industrial logic for the merger in terms of scale, capabilities and cost savings. There will be a political dimension to the creation of a Scottish national champion, not least because the bulk of any cost savings will come north of the border," said Ben Cohen, analyst at Canaccord Genuity.

"There must also be a reasonable likelihood of a counter-bid, for one or both of the parties, given accelerating consolidation in the asset management industry," he added in a note to clients, reiterating a 'buy' recommendation on Standard Life.

The groups said the new company, to be headquartered in Scotland, would take a one-off 320 million pounds cash charge to cover integration costs.

Speaking on BBC radio, Aberdeen Chief Executive Martin Gilbert said the deal would lead to job losses where the two firms had an overlap, although it was too early to say how many would go.

Aberdeen's two-biggest investors, Mitsubishi UFJ Trust and Banking and Lloyds Banking Group, have both given non-binding statements of support to vote in favour of the planned takeover, which the companies say they expect to complete in the third quarter of 2017.

Monday's statement followed confirmation on Saturday that both companies were in talks over a deal that would see Standard Life shareholders own two-thirds of the combined company but both sets of company directors split power on the board.

Standard Life Chief Executive Keith Skeoch and Aberdeen's Gilbert are to share the top job, a prospect that has worried some analysts.

"We have grave concerns over the structure of the board," said Shore Capital analyst Eamonn Flanagan in a note to clients.

"To us, a single CEO calling the shots and retaining overall responsibility is critical in all such transactions... we wait to see how the chemistry between Skeoch and Gilbert develops."

Goldman Sachs is acting as financial adviser to Standard Life whilst JPMorgan and Credit Suisse are advising Aberdeen on the transaction.

($1 = 0.8141 pounds)

(Editing by Rachel Armstrong/Keith Weir)