Pensions and retirement savings group Standard Life (SDLF) has agreed to buy Aegon UK for £2 billion. The deal will create the UK’s second-biggest player in both workplace pensions and retail pensions and savings.
Substantial synergies
The enlarged group will have 16 million customers and total assets under administration of £480 billion. Total net synergies are projected at £800 million, including £340 million of one-off savings and £110 million of annual savings.
Standard Life is funding the deal with £750 million of cash and the issuance of 18.1 million new shares to Dutch assurer Aegon. Shares will be issued using a 30-day VWAP (volume-weighted average price) of 690p against the current price of £720p.
On a proforma basis, the agreement takes Standard Life’s operating profit from ‘capital-light’ businesses from 47% to 57% of group earnings. Operating cash generation will increase by £160 million per year, and over five years the deal will generate £400 million of additional excess cash, increasing the group’s financial flexibility.
Aegon announced in January it had put its UK business up for review with a potential sale in mind. For policyholders and savers, Standard Life is about as good a partner as they could have hoped for.
Standard Life’s major institutional shareholders are supporting the deal on the promise of ‘significant’ value creation from the enlarged group. For retail shareholders, the question will be over the staus of their dividends after a 15.3% capital increase.
The firm has said the deal will ‘further underpin the progressive and sustainable dividend policy on a per‑share basis’. However, operating EPS will only rise by mid single digits by 2029, so does the group dip into its cash reserves in the meantime to maintain the payout?
Disclaimer: The author (Ian Conway) owns shares in Standard Life
Read the press release here:
https://www.standardlifeplc.com/investors
