Investors Start Buying Aberdeen Wagering on Merger Success

(Bloomberg) -- Investors are starting to buy emerging market specialist Aberdeen Asset Management Plc as they warm to a planned 3.5 billion pound ($4.4 billion) merger with Standard Life Plc.

“This is the first week that there have been genuine long-term value-orientated investors looking at Aberdeen,” RBC Capital Markets analyst Peter Lenardos said in an interview, citing conversations with shareholders and investment flows. “Investors are beginning to feel that the share price sell-off is overdone and the pro-forma valuation is attractive.”

Investors are buying the asset manager's shares at a discount to the offer price, betting that the merger will be successful. Aberdeen is set to post its first weekly advance since the deal was announced on March 4, and the stock is still down 8 percent from its price before talks were first disclosed. Standard Life is set for a third consecutive weekly decline.

Shareholders and analysts are awaiting the deal's prospectus, expected to be published soon after Aberdeen's first-half results on May 2. The document will probably detail the proposed composition of both the executive and the non-executive boards.

The all-stock transaction will see Standard Life shareholders own 66.7 percent of the combined Scottish firm, creating a manager that oversees 660 billion pounds in assets and have two chief executive officers -- Keith Skeoch and Martin Gilbert. Doubts still remain about the structure of the deal, including whether having two CEOs at the helm will work.

‘Never Sustainable'

“These co-CEOs or co-chairmans are never sustainable over a longer period of time. I think it makes sense” for now, said David Herro, who oversees international equities at U.S. investor Harris Associates. “I would hope that eventually gets worked out.”

Herro supports the deal, saying at this stage the investor plans to keep the Standard Life shares after the deal is concluded. His firm holds a stake of more than 2 percent in Aberdeen, data compiled by Bloomberg show.

As for Standard Life's shareholders, Henderson Group Plc's David Smith said that he has yet to make a final decision on the transaction. The Scottish insurer is one of his 10 biggest holdings in the Henderson High Income Trust. He likes asset manager stocks but had been avoiding Aberdeen, a firm that he says he stills “needs to feel comfortable” with. Henderson as a firm holds about 3.6 percent of Standard Life.

“On paper the deal does makes strategic sense,” Smith said at a press briefing in London. “We need to meet with more management. We will give them the benefit of the doubt for now, and then we will make a decision of whether we will be supportive.”

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Andrew Blackman