Shares in asset management firm Standard Life (LSE: SL) rose by 9% when markets opened this morning, after the firm said that it had sold its Canadian business for £2.2bn and would be returning £1.75bn to shareholders.
A cracking price
On the face of it, Standard Life seems to have done a cracking good deal.
The £2.2bn price tag agreed by the buyer, Canadian firm Manulife Financial Corporation, equates to a P/E of 19.5, and is 1.9 times the book value of the assets being sold.
Shareholders will receive a return of £1.75bn, equivalent to 73p per share, through a so-called ‘B/C share scheme’, which allows shareholders to choose whether to receive the money as income or capital, to minimise tax implications.
Not a special dividend!
It’s important for shareholders to understand that this capital return isn’t a special dividend — Standard Life is, effectively, shrinking its business.
To maintain a consistent share price and earnings per share following the capital return, Standard Life is planning to reduce the number of shares in circulation, by means of a share consolidation.
This is what happened following Vodafone’s sale of its Verizon Wireless stake, and means that Standard Life shareholders will see the number of shares in their holding fall, reflecting the money they receive back in the capital return.
What about the future?
Although Standard Life will no longer have a comprehensive savings, retirement and insurance business in Canada — the firm’s largest market outside the UK — it won’t be disappearing from this major market completely.
Standard Life has agreed a ‘global collaboration agreement’ with Manulife, which will see the Canadian firm sell Standard Life’s investment funds to its customers in Canada, the US and Asia.
Standard Life says that today’s deal, combined with its recent £390m acquisition of Ignis Asset Management, is expected to generate medium-term earnings per share growth, based on the planned reduction in the firm’s share count.
Is Standard Life still a buy?
At today’s share price of around 415p, Standard Life shares trade on a 2014 forecast P/E of around 17, compared to 14.4 for Legal & General and 15.3 for Prudential.
With a 4% yield, Standard Life remains an attractive income play, but, in my view, uncertainty over future earnings growth could see the firm’s shares drift down again once the hype surrounding this deal fades away, which would provide a more attractive buying opportunity.
