LONDON • Investment managers Standard Life and Aberdeen agreed an £11 billion (S$19 billion) merger that should save £200 million a year in costs, pressuring rivals to follow suit as industry margins sag.
The deal comes as asset managers, which charge higher fees to make active investment decisions, face growing competition from low-cost index-tracking rivals and rising regulatory costs.
The news bumped up shares in Standard Life and Aberdeen in morning trade by around 7 per cent and 5 per cent respectively, to take them to the top of their respective indexes.
"We see a strong industrial logic for the merger in terms of scale, capabilities and cost savings. There will be a political dimension to the creation of a Scottish national champion, not least because the bulk of any cost savings will come north of the border," said Canaccord Genuity analyst Ben Cohen.
"There must also be a reasonable likelihood of a counter-bid, for one or both of the parties, given accelerating consolidation in the asset management industry," he added in a note to clients, reiterating a buy recommendation on Standard Life.
The groups said the new company, to be headquartered in Scotland, would take a one-off £320 million cash charge to cover integration costs.
Speaking on BBC radio, Aberdeen chief executive Martin Gilbert said the deal would lead to job losses where the two firms had an overlap, although it was too early to say how many would go.
Aberdeen's two biggest investors, Mitsubishi UFJ Trust and Banking and Lloyds Banking Group, have both given non-binding statements of support to vote in favour of the planned takeover, which the companies say they expect to complete in the third quarter of 2017.