Aberdeen shares trump Lloyds' on SWIP deal

Aberdeen Asset Management shares shot up more than 12% after it announced the acquisition of Lloyds Banking Group's asset management arm, Scottish Widows Investment Partnership (SWIP).

Reaction from Lloyds investors was more muted, however, with the share nudging up 1% in morning trading.

Under the equity deal, Lloyds will receive approximately 132 million of Aberdeen's ordinary shares, the equivalent of approximately 10% of the company's issued share capital.

Based on Aberdeen's share price of 427p at close on Friday 15 November, Lloyds' stake will be worth approximately £560 million.

Aberdeen will also pay a further consideration of up to £100 million in cash over the next five years, depending on how the combined business performs.

Lloyds has agreed to be a "supportive shareholder" and is locked into holding its full allocation of shares for one year after the deal closes, two-thirds of its shares for at least two years and one-third for three years.

Aberdeen can waive the lock-up agreements at any time and Lloyds can dispose of Aberdeen shares before then if it is necessary for it to comply with capital requirements set out by regulators.

The two companies will also enter a "long-term strategic relationship" with Lloyds' wealth, insurance, commercial banking and retail divisions referring business to Aberdeen Asset Management through use of its funds and mandates.

To this end Aberdeen will manage SWIP's current Investment Solutions offering for Lloyds Wealth clients, will have a long-term contract to manage Lloyds' insurance funds and will have an introducer agreement with the commercial and retail businesses.

For Aberdeen the acquisition is designed to add "breadth and depth" to its product offering, lessening its reliance on its emerging markets franchise, which earlier this year soft-closed its flagship fund.

Aberdeen becomes top dog

It also launches Aberdeen into the top spot of listed investment managers by assets under management, with its £350 billion overtaking Schroders' £255 billion.

Aberdeen's chief executive officer Martin Gilbert, who has been at the company since 1983 and presided over the split-capital investment scandal which nearly brought the company to its knees a decade ago, said: "This transaction is significant for the long-term prospects of Aberdeen in a number of ways.

"It strengthens our investment capabilities and adds new distribution channels; the acquisition of SWIP adds scale to our business through a range of asset classes and it also introduces a strategic relationship with Lloyds Banking Group.

"We are confident that this transaction will deliver considerable additional value to our expanded client base and this will therefore benefit our shareholders. I am delighted to welcome Lloyds as a major shareholder in the Aberdeen group and we look forward to working with them to deliver value through this new strategic relationship."

SWIP has greater capabilities in fixed income than Aberdeen and its related private equity and infrastructure fund management businesses are included in the acquisition.

Aberdeen said SWIP was largely standalone without significant dependencies on Lloyds, so the intention is to migrate it onto Aberdeen's platform in a "controlled manner".

Fully transferring and integrating the business into Aberdeen's global operating model could take up to three years.

Investor view

Shares in Lloyds Banking Group were marginally up in morning trading, as investors tried to work out the impact the deal could have on the bank resuming its dividend payments.

Lloyds said the sale of SWIP would increase the group's common equity core tier one capital ratio by approximately 11 basis points (the equivalent of £310 million in capital approximately).

Over on the Interactive Investors discussion board 'Stutes' questioned "how much longer will the Bank of England/Prudential Regulation Authority take to say yes to the restoration of dividends"?

'Schwee' had his take on the matter: "For as long as it takes. This deal doesn't help Lloyds case because it is in risky paper, not hard cash."

Meanwhile, Aberdeen investor 'Rhigos' said the shareprice had moved so much from a combination of good results, a dividend increase and the Lloyds deal.

"Aberdeen Asset Management said net revenue was 24% higher at £1.07 billion in the year to end-September. Final dividend is raised to 10p per share. I think shares may be worth holding onto."

Aberdeen reported a 39% rise in profits year-on-year to £482.7 million, while the dividend hike was 39% too.