TheChek News Flow

An £11bn deal would create the UK’s largest fund manager

Standard Life is in late-stage discussions to acquire Aberdeen Asset Management in an all-stock deal that would create the UK’s largest money manager with £660bn of assets and be worth around £11bn. 

The companies confirmed the talks on Saturday evening in a joint statement that said a deal would “leverage Standard Life and Aberdeen’s combined strengths to create a world class investment company”.

They added that Standard Life would own 66.7 per cent of the combined group, while Aberdeen would owning the remaining one-third. Under the terms of the deal, Aberdeen shareholders would receive 0.757 new shares in Standard Life.

Martin Gilbert, who co-founded Aberdeen in 1983 and remains its chief executive, and Keith Skeoch, who became chief executive of Standard Life in 2015, would become co-chief executives of the new business. 

Mr Gilbert has been searching for a merger partner for months as Aberdeen’s business is disproportionately exposed to emerging markets and his company’s funds have been plagued by investor withdrawals. Talks with Mr Skeoch intensified at the start of the year, according to one person close to the situation.

A new board would be formed with equal representation from the two companies and will be lead by Sir Gerry Grimstone, Standard Life chairman. Aberdeen’s chairman, Simon Troughton, would become deputy chairman. 

Bill Rattray of Aberdeen would become chief financial officer and Rod Paris of Standard Life would serve as chief investment officer.

Aberdeen has a market value of £3.7bn and is almost half the size of Standard Life, which is worth £7.5bn. Rumours that Aberdeen was searching for a deal had spread throughout the London market over the past week, with some traders putting on speculative bets in recent days. 

The companies added: “There can be no certainty that any transaction will occur nor as to the terms on which any transaction may occur.” As the acquiring party, Standard Life has until the close of business on April 1 to formalise its offer to buy Aberdeen under UK takeover rules.

The talks come as midsized asset managers specialising in active management are under pressure from larger competitors such as BlackRock and Vanguard. 

Both Aberdeen and Standard Life Investments focus on actively picking stocks and bonds, an investment style which has come under additional pressure from the rise of cheap index-tracking funds. 

One of their rivals Henderson recently merged with its US competitor Janus Capital in an attempt to fend off these competitive threats. By combining, asset managers often look to rip out redundant costs and also fire underperforming managers. 

A senior fund manager at a rival European investment house, who declined to be identified, said he would expect to see “lots of job losses” in the event of a merger between the Scottish companies. The two companies employ around 9,000 people in total. 

He added: “This would be immensely logical and imaginative, unlike the Janus/Henderson deal, given the strength of Standard Life’s distribution and the manufacturing strength of Aberdeen. I can see how it [would be] well received by both sets of shareholders.”

If a deal were to go ahead between FTSE 250-listed Aberdeen and the investment business of Standard Life, the combined group would overtake Schroders, which oversees £397bn of assets, as the UK’s largest standalone fund company. 

Standard Life has been making a push into fund management over the past 10 years, distancing itself from its insurance roots in the process. Its Gars range of funds has been described as the “fund management success story of the past decade” by analysts at RBC Capital Markets.

But its performance has stuttered over the past year. Gars failed to beat its benchmark in 2016, and customers have been pulling their money out. That has been a drag on Standard Life’s share price, which has underperformed other big insurance companies such as Aviva and Prudential over the past year. 

Aberdeen has also faced significant problems due to its heavy focus on emerging markets, which have been out of favour with investors over the past four years. Last month Aberdeen recorded its 15th consecutive quarter of net outflows, bringing total redemptions from the FTSE 250 asset manager to more than £100bn since the cycle of withdrawals began. 

A number of prominent hedge funds began betting against Aberdeen’s share price in light of those problems, although all short positions against the Scottish fund house were removed in January for the first time in four years.

Traditional money groups face intense competition from low-cost passive rivals

Standard Life’s late-stage discussions to acquire Aberdeen Asset Management underscore the threat traditional money managers face from low-cost competitors.

An £11bn combination of Scotland’s two biggest investment companies would create the UK’s largest fund house and allow Aberdeen and Standard Life to rip out costs and oust underperforming managers at a time when both companies are losing assets to cheaper passive funds that track the market.

An M&A banker, speaking on condition of anonymity, said: “This feels like an attempt to smash the two companies together and take costs out. They are both smack in the centre [of the problems caused by] the rise of passive funds.”

The companies confirmed the talks on Saturday evening in a joint statement. Standard Life would own 66.7 per cent of the combined group, while Aberdeen would own the remaining one-third. 

Aberdeen recorded its 15th consecutive quarter of net outflows last month, while Standard Life’s flagship fund range, Gars, has performed poorly over the past year with investors withdrawing a net £4.3bn in 2016. The investment teams at both companies focus on actively picking stocks and bonds. 

Amin Rajan, chief executive of Create Research, the asset management consultancy, said: “The threat from passives is keeping CEOs awake at night.”

According to figures from the data provider Morningstar, assets managed in passive mutual funds grew 4.5 times faster than active funds in 2016. Since 2007 the passive fund market has grown four times faster. 

The Anglo-Australian asset manager Henderson’s take over of its US rival Janus Capital in October last year was expected to kickstart a raft of defensive deals in the sector as investment houses battle with pressure on fees and rising regulatory costs.

A senior fund at a rival investment company said: “This is absolutely about scale, with fees under pressure and costs rising.” 

If a deal were to go ahead between the two Scottish fund companies, the combined entity would employ about 4,400 staff and oversee £570bn of assets. This would catapult the combined group up the rankings of Britain’s biggest fund companies, overtaking Schroders, the UK’s largest standalone investment house that oversees £397bn of assets. 

Analysts highlight other large insurance-owned investment companies, including Prudential’s asset management business M&G, and Legal & General Investment Management, as alternative partners for Aberdeen or Standard Life should their talks fall apart. 

The all-Scottish merger initially raised questions about the future of Aberdeen’s boss and serial deal maker Martin Gilbert. Aberdeen, which has a market value of £3.7bn, is almost half the size of Standard Life, which is worth £7.5bn, meaning that Aberdeen would be the junior partner in any deal.

But in the statement released on Saturday night the two companies confirmed that Martin Gilbert, who co-founded Aberdeen in 1983, and Keith Skeoch, who became chief executive of Standard Life in 2015, would become co-chief executives of the new business. 

Bill Rattray of Aberdeen would become chief financial officer and Rod Paris of Standard Life would serve as chief investment officer.

Mr Gilbert has previously said he would never sell Aberdeen. The 62-year-old Scot famously said he would only retire when his friend Sir Alex Ferguson, former manager of Manchester United, stepped down from football management. When Sir Alex retired in 2013 at the age of 71, Mr Gilbert later said he too would carry on until he was 71. 

Mr Rajan says: “Aberdeen has grown hugely under his stewardship, notwithstanding the recent haemorrhaging of assets. He would want to ensure that the merger will take it on to a new trajectory.”

A new board would be formed with equal representation from the two companies and will be lead by Sir Gerry Grimstone, Standard Life chairman. Aberdeen’s chairman, Simon Troughton, would become deputy chairman. 

A merger between Aberdeen and Standard Life Investments is expected to trigger redundancies at the combined group. However any deal would also enable Aberdeen to leverage Standard Life’s strong distribution capabilities, while Standard Life would benefit from Aberdeen’s investment expertise in areas like Asian equities. 

“This would increase the scale of Standard Life quite significantly, and its full-year results showed the challenges the company faces in terms of margin compression and outflows. It strikes me that there is a lot of logic to this deal,” said an insurance banker, who asked to remain anonymous. 

Analysts expect more deals will follow, and highlight Jupiter and Ashmore, the FTSE 250 fund houses, as two of the most likely takeover targets in the months to come. Maarten Slendebroek, Jupiter chief executive, told the Financial Times earlier this month that his company was a “very attractive” takeover target. 

Consultants at McKinsey estimate that a third of the profits earned by investment managers globally could be “wiped out” by 2018, unless more radical steps are taken to cut costs amid growing regulatory and competitive pressures. 

The world’s two largest asset managers, BlackRock and Vanguard, which specialise in passive investing, had the largest inflows in their history last year. BlackRock took in net inflows of $202bn in 2016, while Vanguard attracted $315.3bn of net new money.

Regulators globally are simultaneously scrutinising the active investment industry. The UK watchdog has launched a wide-ranging investigation of the asset management market, which is expected to dent profit margins for active fund houses. Investment companies are also struggling to comply with sprawling reforms, such as the EU’s Mifid II regulations.

Haley Tam, an analyst with Citi in London, says: “As more fund flows head to passive, only the best will survive and competition between active s to outperform will intensify.”

L’affaire François Fillon? Un complot pour éloigner la France du redressement économique

Deux interventions de personnalités hautement respectables viennent confirmer leur soutien à François Fillon et démontrent une machination indigne orchestrée dans l’orbite du pouvoir, avance Arnaud Pineau-Valencienne, partisan affirmé du candidat de la droite et du centre

Au cours de ce dernier quinquennat, la France n’a pas entrepris les réformes tant attendues. Quarante économistes avaient lancé un appel en faveur du candidat de la gauche, pour un résultat économique nul! Appel relayé avec bienveillance par la presse sans échange contradictoire possible. Le silence des «instances de contrôle» sur cette intervention partisane reste une énigme.

Une fois élu, le président a laissé ses ministres et collaborateurs se déchaîner contre leurs collègues allemands, qui eux avaient réformé leur pays avec courage, détermination. Monsieur Wolfgang Schäuble, ministre allemand des finances, n’a pas cessé de demander à la France de respecter ses engagements et de faire les réformes attendues. Il ne fait qu’exprimer le bon sens, ignoré des dogmatiques de gauche. Monsieur Schäuble n’est pas antifrançais, il a rendu un vibrant hommage à Jacques Rueff en préfaçant le livre de l’ancien rédacteur en chef de la Voix-du-Nord, Gérard Minart, «Jacques Rueff, un libéral français».

Un programme cohérent

Seul François Fillon parmi les candidats à l’élection présidentielle a compris le rôle que doit jouer un gouvernement pour créer un environnement propice à la croissance par une économie libérée, comme souhaité par nos partenaires européens. Il a annoncé un programme cohérent pour créer le cadre incitatif tant attendu et pour redresser impérativement notre économie. Les résultats de la primaire de la Droite et du Centre le plébiscitent, alors pour tous ses adversaires il est subitement devenu: l’homme à abattre!

Depuis quatre décennies notre peuple a choisi de privilégier l’assistanat à l’effort, pensant que l’Etat n’avait qu’à redistribuer des richesses, fussent-elles éphémères ou fragiles. La France avait besoin de l’effort de tous pour plus de créativité. Les Français n’ont pas vu le danger d’affaiblir la compétitivité industrielle, déjà frappée et mise à mal par les deux chocs pétroliers. La gauche et les radicaux-socialistes préfèrent exploiter tout simplement les mouvements d’opinion. Les partis veulent conquérir le pouvoir à tout prix mais n’analysent jamais leurs erreurs. Emmanuel Macron partage la responsabilité de l’échec de l’exécutif sortant, il tente un rassemblement du peuple par l’exaltation affective tous azimuts, au milieu de nombreuses incohérences, il trouve le moyen d’insulter notre histoire.

Les principes de Jacques Rueff et Milton Friedman

En économie, il faut comprendre que pour redistribuer quelque chose, seule la richesse créée le permet! Les politiciens aux idées de gauche méprisent les principes élémentaires de l’économie de Milton Friedman ou de Jacques Rueff.

Le pragmatisme du général de Gaulle l’opposait à tout ce qui a été entrepris depuis 1981: «Les gens de gauche ont rarement de grands projets. Ils font de la démagogie et se servent des mouvements d’opinion. La gauche tire le haut de la société vers le bas, par idéal d’égalitarisme. C’est comme ça que l’on a fini dans l’abîme en 1940… Les socialistes sont d’éternels utopistes, des déphasés, des apatrides mentaux. Ils gaspillent toujours la plus grande partie des crédits. On ne les a jamais vus dépenser efficacement les crédits… Je n’aime pas les socialistes, car ils ne sont pas socialistes… parce qu’ils sont incapables, ils sont dangereux.»

Le président sortant n’accepte pas l’idée que les Français se réveillent, sa gestion du pays est désavouée. Les performances économiques du pays placent la France en queue du classement européen. La Cour des Comptes n’est pas avare de critiques envers l’exécutif, le mot de Lamartine est à propos: «(…) Soit que déshérité de son antique gloire / De ses destins perdus il garde la mémoire (…)»

L’assassinat politique démasqué révèle l’exécutif à la manœuvre

Deux interventions de personnalités hautement respectables, aux compétences morales et juridiques incontestables, viennent confirmer leur soutien à François Fillon et démontrent une machination indigne orchestrée dans l’orbite du pouvoir. Elles décortiquent le processus mis en œuvre à la lumière des principes de droit et des dispositions constitutionnelles. Une pression sournoise est exercée sur le peuple pour orienter son jugement, capter son vote, cela par instruction judiciaire interposée…

- Aline Lizotte philosophe, théologienne et enseignante nous interpelle: «Une seule issue, la colère du peuple».

- Treize juristes de haut vol, professeurs de droit, avocats, se réunissent pour dénoncer ensemble «un coup d’Etat institutionnel» de l’exécutif contre François Fillon.

Ce n’est pas la première fois que des hommes politiques font usage de ces méthodes pour atteindre la sensibilité morale de l’électeur et orienter ou désorienter son vote au profit de leur candidat.

La Ve République doit être ce que la république a toujours été, selon son fondateur: «La souveraineté du peuple, l’appel de la liberté, l’espérance de la justice.» En plébiscitant François Fillon lors de la primaire, les Français ont exprimé la force de leur raison, rien ne doit les distraire de la victoire.

Drugmakers Sanofi (SASY.PA) and Regeneron (REGN.O) said on Saturday results from a one-year test of their Dupixent product aimed at adults with eczema or moderate-to-severe atopic dermatitis (AD) had been positive.

"In the CHRONOS study, Dupixent used with topical corticosteroids showed significantly greater clearance of skin lesions and overall disease severity compared to topical corticosteroids alone, which are commonly prescribed for moderate-to-severe atopic dermatitis," Andrew Blauvelt, the principal investigator of the study, said in a joint statement from the companies.

"This study provides positive long-term data for Dupixent, which is important given atopic dermatitis is a chronic inflammatory disease," he said.

A biologics licence application (BLA) for Dupixent was accepted for Priority Review by the U.S. Food and Drug Administration (FDA) in September 2016.

If you became a frequent computer user starting anytime between, say, 1990 and 2007, there’s a good chance that your idea of a PC is a desktop or laptop running a mouse-and-keyboard driven graphical user interface — most likely Microsoft Windows or, to a lesser extent, Apple’s (recently renamed) macOS.

But if you got attached to computing in the last 10 years, you very likely find it more natural and comfortable to do your digital tasks on a multi-touch device lacking a keyboard or mouse and running a new, simpler and cleaner kind of operating system. This certainly includes an Android or Apple smartphone or, possibly, a tablet running Android or iOS. These devices have become by far the most commonly, frequently and extensively used personal computers. They are the new PCs.

Even older people have taken to Android and iOS in a huge way, though they still rely on their traditional Windows and Mac laptops.

Of course, personal technology never turns over entirely, especially in as short a period as a decade. So the redefinition of the PC is an ongoing thing. Even students who might otherwise be permanently attached to their phones are still likely to use a MacBook, Windows laptop or Chromebook some of the time.

Also, there’s a difference between the two newer types of PCs. Despite maturing, smartphones are still wildly popular. But tablets — including the powerful, market-leading Apple iPad — are still too often viewed as unsuitable for productivity and creativity. Their sales have fallen sharply in recent years, partly because their replacement cycle is long.

And there are all kinds of special factors that affect these changes. For instance, people who work in giant companies with rigid IT staffs may still be forced to use heavy laptops for tasks an iPad or even a smartphone could perform as well or better. Open-minded tech tinkerers may still prefer traditional PCs for work because they allow much more customization than, say, an iPad. And, even for those who recognize the speed and capability of tablets, the detachable keyboards available for them may be too inferior to the built-in keyboards on laptops to make it easy to rely on them as the principal device.

But I believe this massive redefinition is real, and that there are signs of optimism for even the lagging tablet part of it.

Signs of a tablet revival?

The tablet — or perhaps more aptly, the large-screen mobile device — is showing new signs of interest.

First, some clamshell devices — laptops — are getting ARM processors, the type that power most smartphones and tablets, and for which iOS and Android were built. That’s a big deal because the typical laptop has run on an Intel or Intel-compatible processor for eons.

Google has even trademarked a name for the processor used in its newly released ARM-driven Chromebook Plus. Microsoft has announced that it’s making it possible to run classic Windows apps on ARM devices.

While Apple has been silent on this matter, I believe there’s a good chance it will introduce ARM-based Macs. This is partly because it has an entire silicon design arm that creates wicked fast, efficient, proprietary ARM chips that get produced in large quantities for iOS devices and run rings around the lowest, most battery-sipping Intel processor Apple uses in its smallest MacBook.

In addition, Samsung just announced a new tablet, the Galaxy Tab S3, which is essentially an Android clone of Apple’s smaller iPad Pro. Both are squarely aimed at productivity. Both were built to use a detachable keyboard and a stylus. There's definitely something going on when the premium tablet designs from every major vendor are converging on the same idea.

It’s the software, stupid

But the signs of a shift to ARM only set the stage for a bigger development: The migration of the most important modern software platforms, Android and iOS, to laptops and other traditional hardware that once defined the old kind of PC.

This is an exciting idea, for sure. But, I believe it won’t matter much until Apple builds an ARM-based laptop running iOS. Here’s why.

Google and Samsung have just tried to do this with the Chromebook Plus. It’s the first Chromebook built from the ground up to run both the cloud-based Chrome OS and Android apps, so popular on smartphones. Sadly, the Android part of this device is currently a miserable failure, although it’s still in beta. This is mainly because there are few Android apps that have been optimized to run well on a large screen — even a typical tablet screen — and it will take a long time to change that.

Microsoft, by contrast, does have a modern breed of multi-touch apps that work properly on a tablet or clamshell screen, and some are included on every Windows tablet and laptop. Unfortunately, partly because Microsoft has no smartphone business to speak of, it also lacks a critical mass of these new-style apps and, even on its tablets, relies instead on classic Windows apps.

Apple, by contrast, boasts 1.3 million tablet-optimized apps for the iPad, and these could presumably easily run on a small laptop with a built-in keyboard and touchscreen. This is more than a small advantage; it’s the reason people might buy this type of device instead of a traditional laptop.

It’s up to Apple to save the iPad

So … only Apple is well positioned to transform the laptop by creating one that runs just iOS. I am emphatically not talking about a traditional Mac, running macOS on ARM. Nor am I proposing a Mac that also runs iOS apps. I am talking about a laptop that only runs iPad apps, including the many productivity and creativity apps that have been built for that tablet.

I believe this would accelerate the redefinition of the PC. It would also resuscitate the iPad, albeit in a different form factor, which would complement, not replace, the current slate and the macOS laptop.

There would be many tradeoffs to be decided. For instance, should the screen detach to become a regular iPad? (I personally wouldn’t care.) Would you still need a trackpad? (Probably.) Would it be called a Mac, an iPad something-or-other, or an entirely new thing? (Probably not a Mac.)

I asked Apple about this. I got a stock statement of allegiance to the current iPad and Mac, and a refusal to discuss future products.

But Apple has just started a new ad campaign pitting the iPad Pro against PCs, and nothing in it mentions the clamshell or built-in keyboard. (Microsoft has run similar ads claiming its tablets are better than MacBook laptops.)

Bottom Line

The definition of a PC, a personal computer, is already undergoing a profound change. A great laptop running the new kinds of user interfaces and apps that people now love on phones and tablets would be a big, exciting event that would help seal the deal. But there hasn't yet been a product that emphatically suggests the era of the traditional PC is fading. And it feels like an opportunity only Apple can seize.

UK could walk away without paying a penny, upper house committee claims

The EU cannot enforce a penny of a possible €60bn divorce bill if Britain crashes out of the bloc without an agreement, according to a report by a Lords committee.

The report published on Saturday admits there are “competing interpretations” on the issue of how much if anything the UK will have to produce to leave the EU.

The Lords’ European Union committee concedes that generous payments might be “impossible” to avoid, for example to ensure future access to the single market.

But it says: “We conclude that if agreement is not reached, all EU law — including provisions concerning ongoing financial contributions . . . will cease to apply and the UK would be subject to no enforceable obligation to make any financial contribution at all.”

The UK currently pays about 12 per cent of the EU’s budget, meaning its withdrawal will impose bigger financial burdens on other net contributors such as France and Germany.

With the British government expected to trigger Article 50 this month, beginning the process of departure, the divorce bill is expected to prompt the first major row between the two sides.

A heavy bill would enrage some Eurosceptics given that the possibility of an exit charge never featured in last year’s EU referendum campaign.

In theory the government could spread some of the payments over many years into the future. But Mrs May’s administration wants a clean break that does not involve any “hire purchase” payments which — in the words of one insider — look like “pseudo or associate member status”.

Senior EU figures have suggested repeatedly that any talks on a new free-trade deal will have to wait until the issue is resolved.

The tab includes liabilities such as pension pledges, infrastructure spending plans and nuclear decommissioning.

So far Downing Street has remained silent on the issue, refusing to say whether or not it will pay the divorce bill and — if so — how much. On Friday Number 10 said the issue was still “hypothetical”.

The Big Read

The nuclear fallout from Brexit

When Britons voted to leave the EU few realised the implications for its nuclear industry

Instead Theresa May used her Lancaster House speech in January to say Britain might make “appropriate” payments in future for some specific programmes — such as the Erasmus student exchange programme.

The Lords report says the question of whether Britain would also have to pay for market access will be a matter of negotiation. “It is likely to involve trade-offs between the level of access sought, the structure and level of other payments and more general political considerations,” it says. “The price that it is asked to pay could be proportionately higher than that demanded of Norway.”

The peers found that many MEPs believed that the UK had a “moral, if not legal” obligation to meet its agreed commitments.

But the committee published an opinion from its own legal adviser arguing that if no agreement was reached within two years it could mean “the most disorderly of withdrawals”.

“It follows that, under EU law, Article 50 TEU allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget, unless a withdrawal agreement is concluded which resolves this issue,” it said.

Lord Tebbit, a former chairman of the Conservative party under Lady Thatcher, told the FT earlier this week that the E60bn claim was “silly nonsense” and argued that Britain should not be responsible for the pensions of UK officials who had “taken an oath of loyalty to the EU.”