Standard Life, Scotland’s largest insurer, is in talks to acquire Aberdeen Asset Management, creating one of Europe’s biggest fund managers overseeing £660bn ($811bn).
Under the terms of the potential deal, Standard Life shareholders would own 66.7% of the combined group, according to a joint statement on Saturday. Aberdeen’s investors would receive 0.757 new Standard Life ordinary share for each share they already own. That values Aberdeen in line with Friday’s market value of £3.77bn, according to Bloomberg calculations.
Active managers have been working to halt a tide of investors shifting money to low-cost, passive funds and have been cutting costs to protect profitability. Aberdeen, hurt by weaker sentiment towards emerging markets, has had more than three years of redemptions, leading chief executive officer Martin Gilbert to reduce expenses and freeze salaries.
“Aberdeen has been struggling of late,” said Laith Khalaf, a senior analyst at Hargreaves Lansdown. “They have seen a huge number of outflows for a significant period of time so probably a combination with Standard Life will steady that ship somewhat.”
Standard Life is known for its multi-asset strategies, including its flagship GARS fund that manages about £25.1bn, while Aberdeen is seen as an emerging-market specialist, with about a quarter of its assets invested in the region. Both companies have suffered outflows from those strategies.
Both Gilbert and Standard Life’s CEO Keith Skeoch have said they wanted to grow in the US, where most of the world’s assets are managed, as part of efforts to become more global. Standard Life Investments, which has a partnership with John Hancock, currently sells nine products to US investors and oversees about £12.5bn of assets there.
The potential combination between the two Scottish firms could achieve annual cost savings of £200mn, Sky News reported, without saying where it got the information. Standard Life, based in Edinburgh, employs around 8,335 people and the Aberdeen, Scotland-based asset manager has more than 2,800 workers. Talks are ongoing and “the potential merger represents an excellent opportunity to leverage Standard Life and Aberdeen’s combined strengths,” according to the firms. 
The combined company would have a market value of about £11bn and see Skeoch and Gilbert become co-CEOs and Standard Life’s Gerry Grimstone would become chairman.
A deal would boost revenue, cash flow and earnings that will deliver “attractive and sustainable returns for shareholders, including dividends,” according to the statement. Both Aberdeen and Standard Life’s investment unit reported outflows in 2016 after investors pulled money in the aftermath of Britain’s shock decision to leave the European Union and Donald Trump’s presidential election victory. Aberdeen’s shares have risen 11.3% this year and Standard Life is up 1.8%.
Gilbert said in May that he had resisted buyer interest saying “being independent is a massive benefit.” The CEO has previously said he wanted to do a deal similar to Henderson Group’s cross-border merger with Janus Capital Group. The firm weighed a bid for Pioneer Global Asset Management and dropped it after saying the price was too high.
Based on Standard Life’s closing share price on Friday of 378.50 pence, the deal would offer Aberdeen shareholders about 286.52 apiece, for a total value of about £3.78bn based on Aberdeen’s 1.32bn shares outstanding. Standard Life declined to comment on the valuation. The insurer, which has sold off insurance assets to focus on asset management, has a market value of £7.5bn.
Goldman Sachs Group is advising Standard Life, while Credit Suisse Group and JPMorgan Chase & Co are advising Aberdeen. Sky News first reported the talks.