Standard Life Aberdeen Plc will sell its "capital-intensive" insurance business to British insurer Phoenix Group Holdings for approximately £3.24 billion.
The sale involves the disposal of Standard Life Assurance Ltd., but Standard Life Aberdeen will retain its U.K. retail platforms and financial advice business. The businesses transferring to Phoenix Group as part of the deal include the U.K. mature retail and spread/risk books and the Europe, U.K. retail and workplace businesses.
Standard Life Aberdeen said the total consideration of the transaction includes £2.28 billion in cash, comprising £2.0 billion payable on completion and about £300 million in dividends payable by Standard Life Assurance to Standard Life Aberdeen in the second quarter. Standard Life Aberdeen will also receive £959 million in new shares in Phoenix Group representing 19.99% of the latter's enlarged issued share capital.
Phoenix Group said it will fund the cash consideration through a fully underwritten £950 million rights issue, up to £1.50 billion in underwritten debt facilities and up to £250 million from its own cash resources. HSBC Bank Plc, Merrill Lynch International, J.P. Morgan Securities Plc and BNP Paribas have fully underwritten the rights issue.
The transaction is expected to complete in the third quarter, subject to regulatory approvals, including from the U.K. Prudential Regulation Authority and Financial Conduct Authority, and completion of Phoenix Group's rights issue, among others. Phoenix Group said the acquisition will enlarge the group, with £240 billion of legacy assets and 10.4 million policyholders.
"This transaction completes our transformation to a capital-light investment business," Standard Life Aberdeen Chairman Gerry Grimstone said.
Standard Life Aberdeen also announced that it has commenced the search for a successor to Grimstone, who intends to step down as chairman by the end of 2019. Julie Chakraverty, Lynne Peacock and Akira Suzuki will also retire from the board at the company's next annual general meeting.
Standard Life Aberdeen, which resulted from the 2017 merger of insurance group Standard Life and investment management group Aberdeen Asset Management, reported full-year 2017 IFRS consolidated profit attributable to equity holders of £699 million, up from £368 million a year earlier. EPS for the year was 29.6 pence, compared to 18.6 pence in 2016.
Pro forma assets under management and administration came in at £654.9 billion at the end of 2017, up from £647.6 billion a year ago, helped by positive investment returns that were largely offset by net outflows.
Investment returns for the year amounted to £12.77 billion, down from £15.38 billion in 2016, while fee income increased over the same period to £1.69 billion from £1.19 billion.
Standard Life Aberdeen said it is strongly capitalized under Solvency II with a capital surplus of £3.8 billion at 2017-end, representing a solvency cover of 197% based on regulatory view, compared to the year-ago 177%.
The company's board proposed a final dividend of 14.30 pence per share for 2017, bringing the total dividend for the year to 21.30 pence per share, up 7.5% from 19.82 pence per share in 2016. The final dividend will be paid May 30 to shareholders on the register April 20.