A merger to create the UK’s biggest fund manager highlights the challenges in the asset management industry, says Ben Judge.
Standard Life and Aberdeen Asset Management have agreed an £11bn all- share merger, which will create the UK’s largest fund manager with more than £660bn of assets under management. Aberdeen shareholders will be left owning a third of the new firm. The fact that Standard Life offered virtually no premium over Aberdeen’s share price “tells shareholders all they need to know” about the pressure the financial industry is under, says the FT’s Lex. “Be under no illusion… this defensive deal is about stripping out costs.”
As takeovers go, reckons Alistair Osborne in The Times, it’s a “pragmatic” one. “It’s clear who’s got the best of it. And it’s not Aberdeen investors”, given the absence of a premium, “or the staff”, many of whom are being “redefined as ‘synergies’” with a view to achieving £200m of annual cost savings. As far as business strategy is concerned, this is effectively an admission that “an active fund manager’s best response to cheaper tracker funds is a cost-cutting tie-up”. That makes the merger look “cosy and defensive”.
Nonetheless, “shareholders hoping for something better… shouldn’t hold their breath”, says Chris Hughes on Bloomberg Gadfly. Despite being “in play for months”, no other offer for Aberdeen was forthcoming, and that is unlikely to change anytime soon. It was thought that Aberdeen’s CEO, Martin Gilbert, “only had eyes for American suitors”, says Nils Pratley in The Guardian, but in the end settled for “his old fishing chum” Keith Skeoch. There’s “no disgrace in taking the defensive Scottish option”. After all, says Alex Brummer in the Daily Mail, Aberdeen has suffered from a slowdown in emerging markets, where many of its funds are focused; it’s seen 15 successive quarters of outflows in this segment. Standard Life, meanwhile, has “turned itself into a fund management champion”, but competition from huge passive fund houses is biting hard.
It hardly helps that Standard Life’s top funds “have started to stutter”, says Oliver Ralph in the Financial Times. Investors have pulled money out, asking “why they should be paying more for managers who underperform low-cost computer-based rivals”.
The idea of two chief executives hasn’t received a unanimous vote of confidence either. While Gilbert and Skeoch “are both in their own right fine leaders who have done wonders for their companies”, says Brummer, “no firm requires two chief executives”. Indeed not, agrees Patrick Hosking in The Times. Other power sharing agreements have led to “friction and turf wars” – the “squabbling” between co-chiefs at Royal Sun Alliance being a prime example.
Citroën maker takes over Vauxhall
The €2.2bn takeover of GM’s loss-making Vauxhall-Opel business by France’s PSA, the maker of Peugeot and Citroën, “should be welcomed”, says the Financial Times. Selling “clearly makes sense” for GM – the last time Vauxhall-Opel made a profit was in 1999. PSA hopes to return it to profit by 2026.
But, while there are certainly “advantages in scale” and scope for “big savings” for PSA, says the FT, it is “hard to see” how it can deliver annual savings of €1.7bn “without cutting jobs”.
PSA has been playing down the fears of job losses. Carlos Tavares, PSA’s chief executive, has been on a “charm offensive”, says Julia Kollewe in The Guardian, meeting politicians and union officials. He has “vowed to turn Opel and Vauxhall around without factory closures or job cuts”.
PSA has said it will respect existing labour agreements, but it is likely to “set Europe-wide targets for efficiency and rank plants against them”, says the FT. “The threat is implicit.” As for the Vauxhall plants in the UK, which employ some 4,500 people, Tavares claims a hard Brexit might encourage PSA to keep them open to develop a UK-based supply chain, says Alistair Osborne in The Times. Yet he is “already negotiating” for a large cheque to save the plants. He has promised to continue production at Ellesmere Port until 2021 and Luton until 2025. “But after that? Who knows?”
► As Britain gears up for life after the EU, the government is looking to the Commonwealth to boost trade. Liam Fox, the international trade secretary, is meeting ministers from the 52-member body this week to reassure them that Brexit will not damage trading relationships. More specifically, ministers want to work more closely with an African free-trade zone, a 26-state scheme that the Commonwealth began to discuss in 2011. Whitehall officials are said to have dubbed Britain’s approach “Empire 2.0”, according to Sam Coates and Marcus Leroux in The Times. Indian MP Shashi Tharoor told LBC radio that that branding would go down “like a lead balloon”.
► This week, Sports Direct owner Mike Ashley denied buying Agent Provocateur. It was not bought by Sports Direct, he said, but by a company called Four Holdings, in which Sports Direct has a 25% share. Whoever bought it, the sale of the frilly-knicker seller hasn’t gone down well with Joe Corré, son of Dame Vivienne Westwood and Agent Provocateur’s co-founder. It went for “chicken feed”, he says in City A.M, and Ashley owning the brand is a “joke”.
► We reported last week how Charlotte Hogg, new deputy director of the Bank of England for markets and banking, was confident that there was no conflict of interest between her role regulating banks and the fact that her brother worked for Barclays. It transpires that she hadn’t declared that conflict of interest when she joined the bank in 2013, thereby breaching the Bank’s code of conduct. The chair of the Bank’s governing court, Anthony Habgood, said it was a “very serious breach” and is “extremely regrettable”. But the court’s deputy chairman, Bradley Fried, was more forgiving. It was “terribly unfortunate”, he said, but merely warrants “grumpiness and a discussion about what it means”.