Aberdeen set to buy SWIP from Lloyds

Drp8713

Telegraph wrote:

Aberdeen Asset Management has seen off a rival bid from Australian group Macquarie to secure the acquisition of fund manager Scottish Widows Investment Partnership from Lloyds Banking Group.

A deal for SWIP, which would see state-backed Lloyds take a stake of approximately 10pc in Aberdeen, could be announced as soon as tomorrow.

The transaction is thought to be valued in the region of £500m, based on Aberdeen’s market value at the end of last week. The FTSE 100 fund manager is understood to have been competing with Macquarie to take over SWIP.

Aberdeen confirmed last month that it had made an approach to Lloyds about buying the fund management business, and said it would pay for the deal by issuing new shares to the bank as well as performance-related deferred cash payments. The fund manager, led by chief executive Martin Gilbert, at the same time disclosed that the Lloyds talks also extended to setting up a so-called “strategic partnership” with the lender.

That relationship could see the FTSE 100 asset management firm take advantage of Lloyds’ branch network to sell its funds.

Investors in Aberdeen have been enthused by the prospect of the SWIP acquisition, which would boost the fund management group’s assets to around £350bn and in turn make it Europe’s largest listed fund manager.
Shares in the FTSE 100 group jumped almost 6pc on the day Aberdeen confirmed it was in talks with Lloyds, but have since come under pressure on concerns that Macquarie would trump the dealwith a competing cash bid.
Aberdeen has said that a deal for SWIP would be “materially earnings-per-share enhancing” and rating agency Fitch has described the potential acquisition as “transformational” for the listed Scottish fund manager.
Aberdeen has a large emerging markets business and a takeover of SWIP would boost its exposure to UK equities.
Meanwhile, the disposal would help Lloyds Banking Group to meet stricter capital requirements.
Spokesmen for Aberdeen, Lloyds and Macquarie declined to comment.

What do people think this will mean for current Lloyds shareholders?

Does that mean we may get some Aberdeen shares?

bowlhead99

Drp8713 wrote: »

Does that mean we may get some Aberdeen shares?

Absolutely not. You personally are not an owner of SWIP so if Aberdeen pay SWIP's owners to buy the SWIP business, whether in cash or shares, you don't get any.

It simply means that the company that you own, which is a banking group that also owns and controls an investment management business, will stop owning that investment management business and will instead get some cash and a small minority interest in a larger investment management business.

By turning its privately-owned SWIP business into some cash and some shares in a publicly-listed business (those shares are relatively more liquid - i.e. can be sold on theopen market for cash), the bank improves its capital position - in other words it is better able to meet the government's liquidity and capital adequacy rules and has a stronger balance sheet with which to face the world.

Sure, Lloyds can give away the cash and shares it receives to its owners, just like it can give away its existing cash to its owners, but it is not likely to do so, because it would rather use that cash in its banking business. And even if it decided that the Lloyds shareholders could make better use of the cash than Lloyds themselves could, we're only talking half a billion quid worth of Aberdeen shares so it's not very practical to distribute them evenly between the 70-odd billion Lloyds shares in issue.

So it's not going to happen. If SWIP had been 99% of Lloyds's business instead of 1%, then perhaps there would have been some kind of special dividend to Lloyds shareholders.

What do people think this will mean for current Lloyds shareholders?

Whether it is a good deal or not depends on your view of what SWIP is worth to the Lloyds business financially and strategically versus the value of whatever Lloyds will receive for selling it.

Conventional wisdom would suggest that if you don't have a view on whether Lloyds should sell SWIP or for what price or where to start with valuing SWIP or what the article is saying, you should probably not have much invested in Lloyds other than as a bit of speculation, and you would be better off doing your investments via funds. However, each to their own.