(Reuters) – Aberdeen Asset Management is to buy Lloyds‘ fund management arm Scottish Widows for about 660 million pounds ($1.1 billion), creating Europe’s No. 1 listed stand-alone fund manager.
Aberdeen will pay with shares worth 560 million pounds, or 9.9 percent of the company, and 100 million in cash over five years depending on how well it manages various Lloyds assets. Lloyds has agreed not to sell any of its stake for a year.
The deal raises Aberdeen’s assets under management by more than two thirds to 336 billion pounds, knocking Schroders into second place and offering it diversification into fixed income and property, where Scottish Widows is stronger.
Aberdeen chief executive Martin Gilbert, who stressed in April that a bid for Scottish Widows was highly unlikely, said that adding its Solutions business, offering wealth management products to Lloyds’ customers, had clinched the deal.
“Our aim is to work with Lloyds to increase their market share in wealth management… It’s the close relationship with Lloyds customers that really attracted us to do this deal,” he told reporters on Monday.
Aberdeen shares surged 13.5 percent, helped by forecast-beating results showing a 24-percent rise in net revenue.
Stuart Duncan, analyst at Peel Duncan, said the deal was “undoubtedly cheap on most measures”. Aberdeen comments that the deal would materially enhance earnings from the first full year had boosted the share price, he said.
Duncan said that based on the initial consideration Aberdeen had paid just 5 times earnings, whereas its own stock trades at a multiple of 15 times earnings.
Analysts at Numis also said the deal looked well priced for Aberdeen but they want to “seek clarity” on how much of Scottish Widow’s assets will stay put and on the lock-up.
For Lloyds, the deal lifts its Core Tier 1 capital by 11 basis points from the 9.9 percent reached in the third quarter to a 10-percent target set by Britain’s financial watchdog. Lloyds shares rose 0.9 percent.
Lloyds, which is 33 percent state owned, is selling off non-core assets to strengthen its balance sheet and focus on lending to British households and businesses.
It needs to plug an 8.6 billion pound shortfall identified by Britain’s financial regulator in June to persuade the regulator to let it start paying dividends again next year.
“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,” Gilbert said.
Led by Gilbert, Aberdeen has seen a big rise in assets since the financial crisis, buoyed by demand for its global emerging market equities funds and a flurry of acquisitions.
Gilbert said there would be some job losses where duplication existed. He declined to say how many would go.
Aberdeen released full-year earnings on Monday slightly ahead of market forecasts. Net revenue jumped 24 percent in the year to Sept. 30 to 1.08 billion pounds.
Underlying pre-tax profits came in 39 percent higher, and Aberdeen said it would pay a full year dividend of 16 pence per share, up from 11.5 pence last year