By Carolyn Cohn, Simon Jessop and Noor Zainab Hussain
LONDON (Reuters) - Standard Life Aberdeen (SLA) has agreed to sell the bulk of its insurance business to Phoenix Group for 3.24 billion pounds ($4.5 billion), allowing it to focus on savings and investment products.
SLA will receive 2.3 billion pounds in cash and a 19.9 percent stake in Phoenix, which is raising 1 billion pounds to fund the deal to become Europe's largest manager of books of mature business from insurance companies.
The sale is part of a long-standing drive by the Standard Life business to exit insurance, which carries onerous capital rules as a result of the industry's European Solvency II rules.
Standard Life merged with Aberdeen Asset Management last year in an 11 billion pound deal.
By exiting insurance, SLA has also cleared one of the hurdles to regaining control of a 109 billion pounds investment mandate from Lloyds Banking Group, which the bank last week said it was pulling due to competition concerns linked to their shared insurance businesses.
At 0940 GMT, shares in SLA were up 1.3 percent at 391 pence, among the top gainers on the FTSE 100 index albeit it off earlier highs, with several analysts saying the deal price fell short of their valuation
Phoenix shares, meanwhile, were up 5.3 percent to lead gainers in the mid-cap index.
"We expect the capital generated from the acquisition to be deployed in buybacks and/or deals." said Exane analyst Arnaud Giblat in a note to clients, flagging an 'outperform' rating.
"BIGGER AND BETTER"
The deal will see Phoenix, which traces its history to the foundation of Phoenix Life Assurance in 1782, take on the 158 billion pounds in assets in SLA's Standard Life Assurance Limited. That unit was founded in 1825 and is also one of Britain's oldest life and pensions businesses.
SLA said it would retain its UK retail platforms and financial advice business.
The assurance business is primarily based in Britain, with operations in Ireland and Germany, and serves about 4.5 million customers and clients, it said.
As part of the transaction, SLA said it would expand the companies' existing strategic partnership. That began after Phoenix sold its asset management business Ignis to Standard Life in 2014, with SLA managing 46 billion pounds of Phoenix's 74 billion pounds in assets.
SLA said it wanted to be "the asset manager of choice" for Phoenix as the latter seeks to win more of the UK market for closed, mature insurance business, worth around 300 billion pounds.
Phoenix Chief Executive Clive Bannister said as SLA generates more assets, his company would be able to administer them, creating an "alignment of interest" that would helped both companies.
"Some deals make you bigger, some better. This does both," he told journalists on a call.
Bannister estimated that 2 billion pounds of workplace pensions and 4 billion pounds in drawdown products could be won annually.
MERGER BENEFITS
In a separate statement, SLA said Gerry Grimstone would stand down as chairman at the end of 2019, having taken the role at Standard Life in 2007.
SLA also reported its first set of annual results since it formed last year.
SLA said the integration of the two companies was going well and it was now targeting 250 million pounds in annualised benefits instead of the previously announced 200 million pounds.
SLA said pro-forma adjusted pretax profit in the year to the end of December was 1.04 billion pounds, down 0.5 percent from 1.05 billion pounds in 2016 but in line with a company-supplied consensus forecast of 1 billion pounds.
Assets under management and administration rose 1 percent over the period to 654.9 billion pounds, although the company said it continued to see outflows from its asset management business as market conditions remained "tough".
Net outflows over the period were 22.1 billion pounds, it said, albeit an improvement on the prior year outflows of 26.1 billion pounds and beating a company supplied analyst forecast for 37.5 billion pounds in outflows.
"Although we have seen net outflows, these have reduced year on year," co-chief executive Keith Skeoch told a media call.
SLA said it would pay a full-year dividend of 21.3 pence a share, up 7.5 percent on the prior year.
SLA was advised on the insurance sale by JPMorgan Cazenove, Fenchurch Advisory Partners, Goldman Sachs and Cenkos Securities.
Phoenix was advised by BofA Merill Lynch, HSBC, JPMorgan Cazenove and BNP Paribas.
($1 = 0.7177 pounds)
(Additional reporting by Emma Rumney and Esha Vaish; Editing by Edmund Blair and Keith Weir)
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