Standard Life plans to return £1.75bn of capital to shareholders – almost a fifth of its current market value – after agreeing a surprise sale of its 180-year-old Canadian business for £2.2bn in cash.
The buyer is the Canadian insurer Manulife and the two companies have agreed to collaborate globally to distribute each other's investment products. The disposal and the alliance with Manulife represents another shift by Standard Life away from traditional insurance policies and towards asset management.
David Nish, chief executive of the Edinburgh-based group, said "most people would think we have got a good price" for the Canadian business, which comprises the group's savings, retirement, insurance and investment management businesses in the country. The £2.2bn price tag represents almost twice the book value of the business, about 19.5 times earnings. Standard Life will book a £1.2bn gain on the sale.
The disposal was announced and the terms, plus the payment to shareholders, should see Standard Life's share price open higher this morning.
"We have transformed our Canadian operations into a business which has consistently delivered strong results, contributing to the overall success of the group," said Nish. "As a result, the Canadian business is now a much more attractive proposition and the sale allows us to realise fully the value of the business for our shareholders."
The cash return to shareholders is worth 73p a share, compared with Standard Life's share price yesterday of 386p. Following the distribution, Nish said the group will have handed out £3.5bn, or 147p per share, to shareholders since 2010, including dividends and special dividends. The latest handout, to follow completion of the sale early next year, will be via a so-called "B/C share scheme" to allow UK shareholders to take the proceeds either as income or capital.
Standard Life said the Canadian corporate pensions and retail savings are "attractive but highly competitive" and that a sale to a large domestic player was "more likely to maximise value for Standard Life shareholders than retaining the business and pursuing an independent strategy in Canada".
But Nish said the collaboration agreement with Manulife meant Standard Life was not leaving Canada. Manulife will distribute Standard Life Investments products throughout retail markets in Canada, the US and Asia. In return, Standard Life will distribute Manulife products in the UK. Standard Life will revamp its Boston office as a "hub" for its entire North American business and open a new office in Toronto to serve institutional customers.
"The collaboration is a natural extension of our existing strategy where we have established a range of global strategic partnerships and relationships," said Keith Skeoch, chief executive of Standard Life Investments, the fund management division.
Nish was coy on what the group would do with the remaining proceeds after the £1.75bn return of capital. But the UK savings market, transformed by the chancellor George Osborne's shakeup of the pensions and annuity market, is likely to be one area as investment firms rush to create new savings vehicles. India, where Standard Life has invested in leading local insurance and fund management companies, could be another avenue.
Standard Life has been vocal this year in warning of uncertainties around the financial makeup of an independent Scotland in the event of a yes vote. Last month Nish said: "We do not believe that further clarity has been provided on any of these issues." Last night he said the group was comfortable with its preparations, which have included setting up subsidiaries in England as a contingency, and was looking forward to dealing with "the new reality, whatever it is."
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