Standard Life‘s (LSE:SDLF) share price didn’t change much on Wednesday (15 April), following an announcement that it’s reached an agreement to acquire the UK insurance and pension business of Aegon.
Let’s take a closer look at the implications of the deal. Specifically, what might it do to the group’s share price?
Some important details
The deal values Aegon’s operation at £2bn. It will be paid for through a combination of debt (£650m), cash (£750m), and the issue of new shares (£600m).
At first glance, the relatively muted response of investors — by mid-afternoon, the group’s shares were up 1.5% — is a little surprising. After all, the agreed price is equivalent to 28.5% of Standard Life’s market cap.
However, the business being acquired is reported to have an annual adjusted operating profit of £190m, valuing the group at 10.5 times this figure. In 2025, Standard Life’s adjusted earnings were £945m, equivalent to a pre-announcement valuation of 7.5 times profit.
What does this mean?
These numbers could be interpreted in two ways.
Either Standard Life’s paying £575m too much, or the group itself is undervalued by £2.8bn. Which is it? Judging by the reaction of investors today, nobody really knows.
It could be that the City’s digesting the implications for the group’s bottom line of taking on new debt. And issuing more shares – Aegon will become a 15.3% shareholder — will dilute existing owners. Once the dust settles, the share price might show a bigger movement, either up or down.
Going in the right direction
However, on the face of it, I think the deal could be good news.
For example, it will create the largest long-term retirement savings and income business in the UK. It will add approximately £160bn to assets under management and another 3.8m customers.
And it means 57% of operating profit of the enlarged group will come from capital-light fee-based business.
In addition, it will improve the group’s Solvency II ratio by a few percentage points.
Also, it’s estimated that £400m of additional free cash will be generated in the first five years following the acquisition. Although positive, this is unlikely to be a gamechanger for existing shareholders like me.
Already, the group has a reputation for being one of the best FTSE 100 dividend payers – the stock’s currently yielding 7.7%. Returning another £80m to shareholders each year would equate to 0.67p, based on the additional 181.1m shares being issued. This would be a 1.2% improvement on the group’s 2025 payout.
Of course, there can never be any guarantees when it comes shareholder returns. Indeed, the group hasn’t confirmed whether all (or any) of the extra cash will be paid in dividends.
But there are risks. It’s not easy integrating newly acquired businesses. And the transaction still needs regulatory approval.
My view
Personally, I welcome the “mid-single digit accretion” to adjusted operating earnings per share.
But to be honest, as a shareholder, I’m not overly-excited by the deal. For example, I still have some concerns over the purchase price. However, I think it will add value over the long term. In turn, this should translate into a higher share price and help maintain dividend growth. And that’s all that really matters when it comes to investing.
On this basis, I’m going to keep hold of my shares.
