Standard Life windfalls 'to average €2,500'
Windfalls averaging £1,700 (€2,500) were today dangled in front of members of Standard Life after the life insurer rejected several approaches from rivals.
The Edinburgh-based firm said 2.4 million policyholders would share in the £4.1bn (€5.9bn) bonanza if a vote in favour of a stock market listing succeeds and it ends 80 years as a mutual.
Around half of the membership will earn £500 (€723.30) to £1,000 (€1,500) if the proposals are approved at a special meeting on May 31, with the remainder collecting in excess of that.
The windfalls will be largest for people who took out a with profits policy a long time ago and have invested significant sums in it since then.
Standard said it was pressing ahead with the flotation to raise £1.1bn (€1.6bn) after rebuffing approaches from a string of parties in recent weeks, including an all-share merger.
No discussions are currently taking place and Standard said the approaches were knocked back because they fell short of the valuation of between £4.8bn (€6.9bn) and £5.5bn (€8bn) anticipated at the time of flotation.
Chief executive Sandy Crombie said: “It is not surprising at this stage that some parties went out to take advantage of the situation, but at the end of the day we don’t want any party to take advantage of our members so we found these approaches easy to reject.”
In a 112-page pack published today, Standard asked for support for the demutualisation on the grounds that it wanted to shift risk from members to shareholders, generate external funds and unlock hidden value.
The eligible with-profits holders will receive 185 free shares in Standard for their loss of membership, as well as more shares depending on their individual policies.
That means half of Standard’s membership will receive in excess of £1,000 (€1,500) with the remainder set for at least £490 (€708.90), based on the mid-point of the forecast pricing range for the shares of between 240p and 290p.
The document also revealed the scale of Standard’s financial problems in 2004, as the insurer today reported losses of £340m (€491.9m).
It began looking at the possibility of demutualising in early 2004, following the introduction of a new “realistic” accounting regime by the Financial Services Authority.
But Standard made profits of £152m (€220m) last year – helped by 3,200 job cuts and a drive to write more profitable business – although its UK life and pensions unit remained £141m (€204.1m) in the red.
The financial details were released for the first time as part of preparations for the flotation.
Mr Crombie urged all members to vote, as the group needs to persuade the Court of Session in Scotland that it has sufficient backing.
In July 2000 it saw off an attempt by fund manager Fred Woollard to force it to become a listed company when his proposal was backed by only 46% of members, well short of the 75% he needed.
But with the number of with-profits investors declining as a proportion of the total customer base, the risks of the group are being carried by progressively fewer people. In a plc these risks generally lie with shareholders.
Tom McPhail, head of pension research at Hargreaves Lansdown, said policyholders should vote in favour of demutualisation as “standing still” was not an option for Standard.
He said: “The reality of what is being put in front of policyholders is that if they choose not to vote in favour of this deal, Standard Life will start going backwards.
“Where Standard Life is now, the business pressures, the investment conditions of the last few years, the regulatory environment and the competitive pressures mean it needs to demutualise in order to move forward.”
He added that because of this it was “slightly academic” to talk about whether the windfall was big enough to compensate people for losing their membership of a mutual.
While the windfall may not be large enough to compensate policyholders for suffering in the past, he said there would still have been pain suffered as a result of the stock market fall whether Standard had been a mutual or a plc.
Mr McPhail added that while Standard had failed to anticipate the way the regulator would treat mutuals, and as a result of this had been forced to sell equities in a falling market, the group had made some “very astute moves” in the past couple of years.
If Standard does demutualise there would be only a handful of mutual life insurers left, including Equitable Life, which is closed to new business.
The level of the windfall is based on estimates from Standard’s financial advisers and is subject to variation, depending on market conditions.
News of the merger approached excited analysts today, with Cantor Index’s David Buik stating that Standard “could well fit very comfortably in a larger financial institution’s portfolio”, possibly Royal Bank of Scotland, AIG, AXA or Allianz.
Friends Provident, which has a similar market value and could be seen as the party behind the approach about an all-share merger, declined to comment on any interest today.
Mr Buik added: “We are led to believe that all overtures have been repulsed to date with a flotation the preferred route. We shall see what Merrill Lynch, which is advising Standard Life, have in store in the weeks to come.”
Warren Perry, head of research at Churchill Investments, said: “I think all round it is a pretty reasonable situation from both a corporate point of view and from a private investor one.”
