STANDARD Life Aberdeen has revealed that it expects to shell out almost a third of a billion pounds to meet the cost of selling its insurance arm to Phoenix Group.
If approved by shareholders, the transaction will result in a cash windfall of £2.3 billion for Standard Life Aberdeen, which will also receive a 19.99 per cent shareholding in the enlarged Phoenix business.
In a note to shareholders explaining the rationale for the deal, Standard Life Aberdeen chairman Sir Gerry Grimstone said that “one-off costs relating to the separation of the transferring group” were expected be in the region of £250 million.
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A further £60m is expected to incurred by consolidating “multiple locations” and eliminating “duplicative overheads” over the next two years, although Sir Gerry said that should result in £100m of net efficiency savings by the end of that period.
He added that the deal offers the potential for Standard Life Aberdeen to offer a range of products and services to Phoenix’s 10 million customers.
“This includes, for example, offering financial advice services to non-advised customers through [wealth management arm] 1825 and the development of our direct-to-consumer capabilities for the enlarged Phoenix Group customers,” he said.
Phoenix, meanwhile, has revealed that it intends to help pay for the acquisition via a rights issue of close to £1bn.
In an announcement to the London Stock Exchange Phoenix, which is a constituent of the FTSE 250 Index, said the cash call “is intended to raise gross proceeds of approximately £950m to be used to fund part of the cash consideration for the acquisition, together with the associated transaction and acquisition costs”.
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Standard Life Aberdeen intends to return most of the cash generated from the sale to shareholders, with Sir Gerry noting that the firm will issue £1bn worth of new shares that it will then redeem for cash if the deal goes through. That will be followed by the buy back of up to £750m worth of shares.
As the sale will also decrease the amount of regulatory capital Standard Life Aberdeen will be required to hold on its balance sheet, the firm intends to pay down a portion of its £1.9bn debt.
Shares in Standard Life Aberdeen, which fell during morning trading yesterday, ended the day less than one per cent down at 350.5p.
Phoenix’s shares, meanwhile, closed 1.5% up at 783.5p.
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