Brian BollenStandard Life and Aberdeen are limbering up to cut approximately 800 roles from their total global headcount of the combined group as at 31 December 2016.
Cuts to the approximately 9,000-strong workforce will take place over the three-year integration period that will follow completion of the planned merger of the asset managers (should the merger complete, of course, and Standard Life Aberdeen come into being).
Details of the plans are tucked away on page 73 of the formal prospectus, published yesterday (9 May). They immediately follow a tender paragraph in which the two principals, advised by, inter alia, Goldman Sachs, say:
- they attach great importance to the skills and experience of Aberdeen’s and Standard Life’s management and employees;
- that the combined group will offer significant opportunities for employees in a business of greater size and scope incorporating the skills and talent present in both companies.
Synergy is defined by author John Lanchester in his very readable book 'How To Speak Money' as 'mainly bullshit, but when it does mean anything it means merging two companies together and taking the opportunity to sack people'.
In this case, synergies will come in part from employee departures arising from that other longstanding corporate method of cutting the payroll: natural turnover.
Other appropriate steps will be taken to minimise the number of compulsory redundancies, including the active management of Standard Life’s and Aberdeen’s recruitment and vacancies.
Operational efficiencies
Standard Life and Aberdeen say they will look to maximise operational efficiencies, including the rationalisation and consolidation of premises where Standard Life and Aberdeen already operate from multiple locations in a close geographic proximity.
Standard Life and Aberdeen say they will engage and consult with employees and their representative bodies in accordance with their respective legal obligations with regard to any impacts on employment or the location of places of business once integration planning is complete and detailed restructuring proposals and potential impacts are known.
Finalisation of the proposed integration plan will be subject to engagement with appropriate stakeholders, including management and employee representative bodies.
Pension rights guaranteed
Standard Life and Aberdeen have each confirmed that the existing statutory and contractual employment rights, including accrued pension rights of all Standard Life and Aberdeen employees, will be fully safeguarded upon and following completion of the Merger.
Both Standard Life and Aberdeen are signatories to the HMT Women In Finance Charter and the Combined Group will set a single target to reflect both companies' commitment to the importance of diversity.
Shareholder value
Standard Life says it believes that the merger has the potential to deliver material value creation for both sets of shareholders.
This will come through the enhanced competitive positioning of the combined group and through the opportunity for synergies to be achieved in a number of areas.
The Standard Life Directors expect recurring pre-tax cost synergies of approximately £200m per annum by the end of the third year following completion of the merger, with additional upside potential through a number of revenue growth opportunities.
City code
It adds that the expected pre-tax cost synergies have been prepared in accordance with the City Code and standard market practices.
This involved the respective management teams of Standard Life and Aberdeen developing a detailed joint synergy and integration plan, which enabled them to calculate a per annum pre-tax cost synergy estimate.
Contingency percentages were then applied to management’s gross targeted synergies to arrive at the published figure for cost synergies stated above.
Track record
As evidenced by the synergies arising following the acquisition of Scottish Widows Investment Partnership Limited by Aberdeen in April 2014 and Ignis by Standard Life in July 2014, the proposed management team of the Combined Group has previously achieved cost synergies in excess of published estimates.
The constituent elements of the quantified cost synergies, which are expected to originate from the cost bases of both Standard Life and Aberdeen, include:
- Efficiencies from simplifying and harmonising platforms (approximately 31% of the identified synergies)
- Savings envisaged from consolidating the operating, trading and other platforms used by both organisations as well as through a reduction in the number of third-party service providers
- Eliminating overlap in distribution (approximately 16% of the identified synergies).
- Savings in Standard Life’s and Aberdeen’s complementary distribution networks by consolidating operations where both operate in close geographic proximity.
- Rationalisation of central functions across the Combined Group (approximately 12% of the identified synergies).
Further savings will come from rationalising the premises portfolio and related property management fees, reduced travel costs and reductions in legal, professional and consultancy fees as well as other sources such as removing areas of duplication in investment management capability while retaining the best of both franchises and talent.
The Standard Life Directors expect that 75% of the annual pre-tax cost synergies will be achieved by the end of the second year after completion, with the full annual pre-tax cost synergies of approximately £200m being achieved by the end of the third year following completion.
It is envisaged that the realisation of the quantified cost synergies will result in one-off integration cash costs of approximately £320m in aggregate.
Under the terms of the merger:
- Sir Gerry Grimstone will become chairman of the board of the combined group
- Aberdeen’s chairman, Simon Troughton, will become deputy chairman.
- Standard Life’s chief executive officer, Keith Skeoch (pictured above), and Aberdeen’s CEO, Martin Gilbert, will become co-CEO of the combined group.
- Aberdeen’s Chief Financial Officer, Bill Rattray, and Standard Life Investments Limited’s chief investment officer, Rod Paris, will become CFO and CIO of the combined group, respectively.
No synergies there, it would seem.