The two UK-listed asset managers have agreed on a merger deal that will create a business with £660 billion of assets under administration.

(Updates with share price reaction, commentary.)

Standard Life, the UK-listed insurer engaging in business lines including wealth management, and London-listed Aberdeen Asset Management have agreed to merge, they said today, after confirming at the weekend they were talking about a possible £11 billion ($12.5 billion) all-share deal, creating a business with £660 billion of assets under administration. Both firms have international operations in regions including Asia.

Under the terms of the merger, holders of Aberdeen shares will be entitled to receive 0.757 new shares in exchange for each Aberdeen share. On that basis, and based on the closing price of 378.5 pence per Standard Life share on 3 March 2017 (the last business day before the announcement), the merger values each Aberdeen share at 286.5 pence and Aberdeen’s existing issued ordinary share capital at approximately £3.8 billion, the companies said in today's statement.

When the merger is completed, Aberdeen shareholders will own about 33.3 per cent and Standard Life shareholders will own around 66.7 per cent of the combined group on a diluted basis, the statement said.

Shares in Standard Life were up 5.73 per cent today at 400.4 pence per share around 1200 GMT noon in the UK; shares in Aberdeen were up around 4.8 per cent at 300.10 per share.
The merger "represents an excellent opportunity to leverage Standard Life and Aberdeen’s combined strengths to create a world class investment company," the firms said in a separate statement at the weekend that confirmed talks were in progress. It will create the largest active investment management house with a total of £660 billion of pro-forma assets under administration, they said.

A merger will also cause "material earnings accretion for both sets of shareholders," the weekend statement said, although it made no reference to a specific financial figure.

Standard Life chairman Sir Gerry Grimstone will become chairman of the board of the combined group, with Aberdeen’s chairman Simon Troughton becoming deputy chairman. Keith Skeoch, CEO of Standard Life, and Martin Gilbert, CEO of Aberdeen, will become co-CEOs. In addition, Bill Rattray of Aberdeen and Rod Paris of Standard Life will become chief financial officer and chief investment officer, respectively.

"It is envisaged that the board of directors of the merged firms will be made up of equal numbers of Standard Life and Aberdeen directors," the statement said.

The merger is expected to be effected by means of a court sanctioned scheme of arrangement of Aberdeen. Aberdeen is being advised by Credit Suisse and JP Morgan. Goldman Sachs is advising Standard Life.

The transaction is subject to the customary regulatory and shareholder approvals.

“We believe this merger is excellent for our clients, bringing together the strong and highly complementary investment capabilities of each firm with a breadth and depth of talent unrivalled amongst UK active managers and positioning the business to meet the evolving needs of clients and customers. This merger brings financial strength, diversity of customer base and global reach to ensure that the enlarged business can compete effectively on the global stage," Martin Gilbert, Aberdeen's CEO, said today.

(Editor's note: The deal represents a triumph in some ways for Aberdeen's CEO, Martin Gilbert. At the start of this century, when the UK stock market was being hit in the wake of the dotcom boom implosion, Aberdeen was in freefall; its involvement in the split-capital investment trust sector proved ruinous as the leverage embedded in these vehicles turned vicious. Standard Life also suffered during in this era, but has since recovered. It has a significant wealth management business. Aberdeen has restructured; it is an important investment house in regions such as Asia. With regulatory cost burdens still rising, the economies of scale of such a merger make sense. A question will be the future of the brands in the medium term. Both firms also have Scottish roots and are examples of how that country has boxed above its weight in financial services for many years. A point to watch of course will be the impact on jobs inside and outside Scotland; much depends on any duplication of roles. This could prove a sensitive issue particularly against the backdrop of the Brexit vote and worries, justified or not, about the UK's status as an international financial base.)